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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-19594
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INSURANCE AUTO AUCTIONS, INC.
(Exact name of Registrant as specified in its charter)
ILLINOIS 95-3790111
(State or other jurisdiction (I.R.S. Employer
of Identification Number)
incorporation or
organization)
850 EAST ALGONQUIN ROAD, SUITE 100
SCHAUMBURG, ILLINOIS 60173
(847) 839-3939
(Address, including zip code, and telephone number, including area
code, of Registrant's principal executive offices)
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001
par value
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock (based on the closing price as
reported by the Nasdaq National Market on March 15, 1998) held by non-affiliates
of the Registrant as of March 15, 1998 was approximately $62,900,000. For
purposes of this disclosure, shares of Common Stock known to be held by persons
who own 5% or more of the shares of outstanding common stock and shares of
common stock held by each officer and director have been excluded in that such
persons may be deemed to be "affiliates" as that term is defined under the Rules
and Regulations of the Act. This determination of affiliate status is not
necessarily conclusive. As of March 15, 1998, the Registrant had outstanding
11,307,454 shares of Common Stock, $0.001 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Notice of Annual Meeting and Proxy Statement
for the Registrant's Annual Meeting of Shareholders are incorporated herein by
reference in Part III hereof.
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PART I
ITEM 1. BUSINESS.
The discussion in this section contains forward-looking information that is
subject to certain risks, trends and uncertainties that could cause actual
results to differ materially from those projected, expressed or implied by such
forward looking information. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in "Factors
That May Affect Future Results" below and "Management's Discussion and Analysis
of Financial Condition and Results of Operations." Among these risks are
governmental regulation, weather conditions, market value of salvage,
competition, quality and quantity of inventory available from suppliers, and
dependence on key insurance company suppliers.
GENERAL
Insurance Auto Auctions, Inc., together with its subsidiaries
(collectively, "IAA" or the "Company"), offers insurance companies and other
vehicle suppliers cost-effective salvage processing solutions. In an accident,
theft or other claims adjustment process, insurance companies typically take
possession of a vehicle because (i) based on economic and customer service
considerations, the vehicle has been classified as a "total loss" and the
insured replacement value has been paid rather than the cost of repair or (ii) a
stolen vehicle is recovered after the insurance company has settled with the
insured. The Company generally sells these vehicles at live or closed bid
auctions on a competitive-bid basis at one of the Company's facilities.
The Company processes salvage vehicles under three methods:
purchase agreement, fixed fee consignment and percentage of sale consignment.
Under the purchase agreement method, IAA generally purchases vehicles from the
insurance companies upon clearance of title, under financial terms determined by
contract with the insurance company supplier and then resells these vehicles for
IAA's own account at IAA auctions. Under the fixed fee consignment and
percentage of sale consignment method, the Company sells vehicles on behalf of
insurance companies, which continue to own the vehicles until they are sold to
buyers at auction. Under these methods, the Company generally conducts either
live or closed bid auctions of the automotive salvage in return for agreed upon
sales fees. In addition to fees, the Company generally charges its fixed fee
consignment and percentage of sale consignment vehicle suppliers for various
services, including towing and storage. Under all methods of sale, the Company
also charges the buyer of each vehicle various buyer-related fees.
Prior to 1992, the Company operated almost exclusively using the
purchase agreement system of salvage disposal. Since 1992, IAA has acquired
additional auto salvage pool operations, resulting in a network of 46 salvage
pools in 19 states as of December 31, 1997. In February of 1998 the Company
acquired Auto Disposal Company, Inc. ("ADC"). ADC operated two salvage pools in
Alabama. Most of these businesses operate primarily using the fixed fee
consignment method of sale. As a result of these site additions, a majority of
the vehicles currently processed by IAA are now sold under fixed fee and
percentage of sale consignment arrangements. In 1997, approximately 70% of the
vehicles processed by IAA were sold under the fixed fee and percentage of sale
consignment methods, and 30% were sold under the purchase agreement method.
The Company obtains the majority of its supply of vehicles from a
large number of insurance companies and smaller quantities from non-insurance
company suppliers such as rental car companies and non-profit organizations.
Historically, a limited number of insurance companies have accounted for a
substantial portion of the Company's revenues. In 1997, vehicles supplied by the
Company's three largest suppliers accounted for approximately 46% of the
Company's unit sales. The largest suppliers, State Farm Insurance, Allstate
Insurance ("Allstate"), and Farmers Insurance, each accounted for approximately
19%, 17% and 10% respectively, of the Company's unit sales. A number of other
insurance company suppliers have also contributed to the profitability of the
Company, including 20th Century Insurance.
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HISTORY
The Company was organized as a California corporation in 1982
under the name Los Angeles Auto Salvage, Inc. ("LAAS"). In January 1990, all the
outstanding capital stock of LAAS was acquired in a leveraged buyout and, in
October 1991, LAAS changed its name to Insurance Auto Auctions, Inc. The Company
completed its initial public offering in November 1991 and its common stock is
traded on the Nasdaq National Market tier of The Nasdaq Stock Market under the
symbol IAAI. In 1997, the Company reincorporated in the state of Illinois.
IAA PURCHASE AGREEMENT METHOD
Under the purchase agreement method of sale, the Company is
required to purchase, and the insurance company and other non-insurance company
suppliers are required to sell to the Company, virtually all total loss and
recovered theft vehicles generated by the supplier in a designated geographic
area. IAA then works to enhance the value of purchased vehicles in the selling
process and assumes the risk of market price variation for vehicles so
processed. Under the purchase agreement, insurance companies may outsource much
of the salvage administration workload and this potentially reduces their
expenses accordingly. The agreements are customized to each supplier's needs,
but typically require the Company to pay a specified percentage of a vehicle's
Actual Cash Value ("ACV"), depending on the vehicle's age, certain other
conditions and whether the vehicle is a total loss or recovered theft vehicle.
The Company's revenue from the sale of a purchase agreement vehicle is the
actual selling price of vehicle. The Company has added adjustment and
risk-sharing clauses to its new standard purchase agreement contracts designed
to provide some protection to the Company and its customers from certain
unexpected, significant changes in the ACV/salvage price relationship. In 1997,
approximately 30% of the units processed by IAA were processed through the
purchase agreement method of sale, compared with 33% in 1996.
IAA FIXED FEE CONSIGNMENT SALE METHOD
Approximately 66% of the Company's vehicles for the year ended
December 31, 1997 were sold on the fixed fee consignment method of sale,
compared with 64% in 1996. Under this method of sale, the Company typically acts
as an agent for the insurance company rather than as a purchaser of salvage
vehicles. As agent, the Company arranges for the salvage vehicle to be towed to
its facility and processes the car for sale. Under this method of disposal, the
Company charges fees to the insurance company supplier, typically including a
towing fee, a title processing fee and a storage and salvage sales fee. Since
the Company does not own the vehicle, the Company's revenues per vehicle from
consignment sales are received only from these fees rather than from the revenue
from the sale of the vehicle. As a result, revenue recognized per vehicle under
the consignment method of sale is approximately 5% to 15% of the revenue
recognized per vehicle under the purchase agreement method, where the sale price
of the vehicle is also recorded.
IAA PARTNERPLUS(TM) (PERCENTAGE OF SALE CONSIGNMENT) METHOD
The Company offers certain of the services provided to its
purchase agreement suppliers to particular consignment suppliers. In 1993, IAA
introduced the PartnerPlus (TM) service program, combining several of IAA's
purchase agreement services with a percentage of sale consignment arrangement
under which the insurance company receives a negotiated percentage of the
vehicle-selling price. As under the fixed fee consignment method, IAA acts as an
agent for the supplier. The PartnerPlus (TM) arrangement provides suppliers with
potentially greater upside since IAA's fees are tied to selling prices and IAA
has, thus, more incentive to invest in improvements to salvage vehicles to
maximize sale prices. Many of these enhancements (detailing the vehicles, for
example) are practiced with purchase agreement vehicles with which the Company
has expertise. The PartnerPlus (TM) arrangement provides to certain suppliers a
competitive alternative to traditional fixed fee consignment services.
Approximately 4% and 3%, of the vehicles processed by the Company were sold
under the percentage of sale consignment method in 1997 and 1996, respectively.
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SERVICES PROVIDED TO ALL SUPPLIERS
The process of salvage disposition through the IAA system
commences at the time of loss, or when a stolen vehicle has been subsequently
recovered. An insurance company representative assigns the vehicle to the
Company, either by phone, facsimile or, through the Company's on-line electronic
DataLink (TM) system. DataLink(TM) is the Company's proprietary computer order
processing system that enables insurance company suppliers to access their data
electronically and to retrieve information on a vehicle at any time during the
claims adjustment and disposal process.
The Company's FastTow(TM) service also provides towing services
which guarantee that vehicles will be delivered to a Company branch storage
facility, usually within one to two business days of assignment within a
designated service area. In retrieving a vehicle, the FastTow(TM) service will
also advance, on behalf of the supplier, any storage and towing charges incurred
when the vehicle was initially towed from the accident scene or recovered theft
site to the temporary storage facility or repair shop. Once these advance towing
and storage charges have been reviewed and verified by the Company, the towing
subcontractor generally will pay the charges at time of vehicle pick up and
deliver the vehicle to the predetermined Company auction and storage facility.
The rapid retrieval time and review of advance charges are also intended to
increase the insurance company's net return on salvage. The FastTow(TM) service
is normally provided to insurance company purchase agreement, percentage of sale
and consignment suppliers.
In order to further minimize vehicle storage charges incurred by
insurance company suppliers at the temporary storage facility or repair shop
(which can be as high as $50 per day per car) and improve service time to the
policyholder, the Company and certain of its insurance company suppliers have
established vehicle inspection centers ("VICs") at many of the Company's
facilities. A VIC is a temporary storage and inspection facility located at an
IAA site that is operated by the insurance company. Suspected total loss
vehicles are brought directly to the VIC from the temporary storage facility or
repair shop. The insurance company typically has appraisers stationed on the VIC
site in order to expedite the appraisal process and minimize storage charges at
outside sites. If the vehicle is totaled by the insurance company, the vehicle
can easily be moved to IAA's vehicle storage area. If the vehicle is not
totaled, it is promptly delivered to the insurer's selected repair facility. IAA
also provides video imaging as a service to its customers, digitizing pictures
of the damaged cars and electronically displaying them to insurance adjusters in
their office.
After a totaled vehicle is received at a Company facility, it
remains in storage but cannot be auctioned until transferable title has been
submitted to and processed by IAA. For most vehicles stored on its facilities,
no storage charges accrue for a contractually specified period. The document
processing departments at the Company's facilities provide management reports to
the insurance company suppliers, including an aging report of vehicles for which
title documents have not been provided. In addition, the Company customarily
offers the insurance company staff training for each state's Department of Motor
Vehicles ("DMV") document processing. These services expedite the processing of
titles, thereby reducing the time in which suppliers receive their salvage
proceeds and decreasing the suppliers' administrative costs and expenses. Upon
receipt of title documents, the Company's contractual obligation to pay its
insurance company purchase agreement suppliers commences. For total loss
vehicles, the Company then processes the title documents in order to comply with
DMV requirements for such vehicles. This may involve re-registering the vehicle
and obtaining a salvage certificate, after which the Company is entitled to sell
the salvage vehicle. The company holds auctions every week or bi-weekly in all
of its locations. The auction is either live or sealed bid as desired by vehicle
providers. Auction lists can be viewed on line on the Company's internet website
where buyers can review vehicles at a location or search for specific vehicles.
The Company remits payment to the insurance company suppliers
within a contractual time period or shortly after sale of the vehicle and
collection from the buyer. In addition, most insurance company suppliers
generally receive monthly summary reports of all vehicles processed by the
Company. The reports track the insurance companies' gross return on salvage, net
return on salvage, exact origin and detail of storage charges and other useful
management data. The Company also provides many of its suppliers with quarterly
Comprehensive Salvage Analysis of salvage trends.
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OTHER SERVICES
IAA's BidFast (TM) service provides insurers with a binding bid
for a salvage vehicle which historically may have been owner retained. The
return on such vehicles (owner-retained salvage vehicles) is, many times,
measurably improved for the supplier using this service and enables compliance
with many state department of insurance regulations.
IAA also provides certain insurance company suppliers with
anti-theft fraud control programs for vehicle salvage processing. The Company's
CarCrush (TM) services helps insurance companies to crush severely damaged or
stripped "high profile" cars to prevent their vehicle identification numbers
("VINs") from being used in auto theft. IAA also provides computerized reporting
of vehicle sales to the National Insurance Crime Bureau ("NICB"). This includes
detailed buyer information obtained through the Company's registration process.
IAA has also continued its support for consumer protection laws calling for the
nationwide, mandatory use of salvage certificates for salvage vehicles.
The Company offers a National Salvage Network, based in Dallas,
Texas, that allows insurance company suppliers to call in all their salvage
vehicle assignments to a single location. This call center enables IAA to
distribute vehicle assignments in most of the United States, even in markets
where IAA does not currently have a facility, and is designed to minimize the
administrative workload for insurance companies and provide IAA with broader
geographic coverage. In certain areas where the Company does not have a
facility, such vehicles are distributed to IAA selected ServicePartners(TM).
The Company also offers, through its Specialty Salvage Division,
salvage services for specialty vehicles, such as trucks, heavy equipment, farm
equipment, boats, recreational vehicles and classic and exotic cars. Marketing
these vehicles nationwide to specialty buyers offers insurance companies the
opportunity for better returns on units that typically do not sell for as much
at local salvage pools as a result of the limited number of local buyers. These
vehicles can be viewed on line through the Company's internet website.
GROWTH STRATEGIES
The Company seeks to increase sales on a profitable basis by
offering to insurance company suppliers a variety of methods of sale (including
purchase agreement, fixed fee consignment and percentage of sale consignment)
and service and by (i) increasing market share at existing sites; (ii) continued
market penetration through the acquisition of sellers of automotive salvage;
(iii) new site expansion; (iv) development of national/regional supplier
agreements, and (v) the offering of new services to insurance companies to
assist them in reducing time and cost in the claims process.
Increasing Market Share at Existing Sites
The Company's primary strategy for growth in its existing markets
is to contract for additional vehicles by promoting better returns on salvage
vehicles and a broad selection of services to prospective suppliers. The
expansion of the number of vehicles processed at existing sites coupled with the
Company's introduction of the Auction Club for IAA buyers, offering discounts on
goods and equipment used by buyers of the vehicles, typically makes the
Company's auctions more attractive and results in more buyers attending
auctions.
Continued Market Penetration Through Acquisitions
Since the Company's initial public offering in November 1991, the
Company has acquired additional pool operations across the United States to
offer better, national coverage to its insurance company customers. On December
31, 1997, the Company operated 46 salvage pools in 19 states. Subsequent to
December 31, 1997, two additional pools were acquired in Alabama.
IAA intends to continue to pursue acquisitions of
strategically-located salvage pools. Through such acquisitions, it seeks to
enhance a geographically broad-based relationship with key insurance company
suppliers, as well as to offer its specialized salvage services to new insurance
companies and certain noninsurance company suppliers. In pursuing its
acquisition strategy and plans, the Company recognizes that there will be
continuing
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challenges in effectively and efficiently integrating new facilities into
existing IAA operations. This will require continuing investment in
infrastructure. See "Factors That May Affect Future Results."
New Site Expansion
While the Company will continue to pursue growth through
acquisitions, it also will continue to seek growth through the opening of new
sites. The opening of new sites offers advantages in certain markets and
capitalizes on regional and national customer accounts. The last new site was
opened in Kansas in the summer of 1996; the new site serves the Kansas City
area.
Development of National/Regional Supplier Agreements
The Company's expanded geographic base of operations, plus its
National Network, facilitates its strategy of offering its customers and
prospective customers national and regional supplier agreements. These can
provide a more consistent reporting and control function to its customers, who
benefit from a reduction in the number of suppliers through which they must do
business.
Offering of New Services
The Company is actively pursuing opportunities for growth through
the identification and development of new, non traditional customer valued
services and business offerings that leverage the Company's current
competencies, geographic presence and assets. The primary focus of these new
services is to provide to the insurance industry new, innovative options and
alternatives for reducing the time and costs associated with processing
insurance claims.
SUPPLIER MARKETING
The Company's sales personnel call on insurance company and
non-insurance company suppliers. Based upon historical data supplied by a
prospective supplier, the Company can provide prospective suppliers with a
detailed analysis of their current salvage returns and a proposal setting forth
ways in which the Company can improve salvage returns, reduce administrative
costs and expenses and provide proprietary turnkey claims processing services.
In addition to providing insurance companies and certain
non-insurance company suppliers with a means for disposing of salvage vehicles,
the Company provides services that are intended to increase the net amount of
salvage sale proceeds received by the suppliers and reduce the time in which the
suppliers receive net proceeds. The Company seeks to become an integral part of
its suppliers' salvage process. The Company views such mutually beneficial
relationships as an essential component of its effort to retain existing
suppliers and attract new suppliers.
The Company also seeks to expand its supply relationships through
recommendations from individual branch offices of an insurance company supplier
to other offices of the same insurance company. The Company believes that its
existing relationships and the recommendations of branch offices currently play
a significant role in its marketing of services to national insurance companies
from its growing network of salvage locations. Indeed, as the Company has
expanded its geographic coverage, it has been able to market its services to
insurance suppliers offering to handle salvage on a national basis or for a
large geographic area.
CUSTOMER MARKETING AND SALES
The Company sells the majority of its vehicles through live
auctions. IAA maintains databases, which currently contain information regarding
nearly 20,000 registered customers. No single customer accounted for more than
10% of the Company's net sales in 1997. The Company generally accepts cash,
money orders, cashier's checks, wire transfers, and, for selected credit card
customers, pre-approved checks, at the time the vehicle is picked up. Vehicles
are sold "as is" and "where is." Sales notices listing the vehicles to be
auctioned on a particular day at a particular location are generally mailed,
faxed or available online on the Company's internet website to the Company's
customers in advance of the auction. Such notices list details about the
vehicle,
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including the year and make of the vehicle, the nature of the damage, the status
of title, the order of the vehicle in the auction and the rules of the auction.
COMPETITION
Historically, the automotive salvage industry has been highly
fragmented. As a result, the Company faces intense competition for the supply of
salvage vehicles from vehicle suppliers, as well as competition for processors
of vehicles from other regional salvage pools. These regional salvage pools
generally process vehicles under the fixed fee consignment method and generally
do not offer the full range of services provided by the Company. The salvage
industry went through a period of consolidation, however, and the Company
believes its principal publicly-held competitor is Copart, Inc. Copart, Inc. has
effected a number of acquisitions of regional salvage pools and competes with
IAA in most of IAA's geographic markets. Due to the limited number of vehicle
suppliers, competition for salvage vehicles from Copart and regional suppliers
is intense. It is also possible that the Company may encounter further
competition from existing competitors and new market entrants that are
significantly larger and have greater financial and marketing resources. Other
potential competitors could include used car auction companies, providers of
claims processing software to insurance companies, certain salvage buyer groups
and insurance companies, some of which presently supply auto salvage to IAA.
While many insurance companies have abandoned or reduced efforts to sell salvage
without the use of service providers such as the Company, they may in the future
decide to dispose of their salvage directly to customers. There can be no
assurance that the Company will be able to compete successfully against current
or future competitors or that competitive pressures faced by the Company will
not have a material adverse effect on its business, operating results and
financial condition.
GOVERNMENT REGULATION
The Company's operations are subject to regulation, supervision
and licensing under various federal, state and local statutes, ordinances and
regulations. The acquisition and sale of totaled and recovered theft vehicles is
regulated by governmental agencies in each of the locations in which the Company
operates. In many of these states, regulations require that the title of a
salvage vehicle be forever "branded" with a salvage notice in order to notify
prospective purchasers of the vehicle's previous salvage status. In addition to
the regulation of sales and acquisitions of vehicles, the Company is also
subject to various local zoning requirements with regard to the location and
operation of its auction and storage facilities. Some state and local
regulations also limit who can purchase salvage vehicles, as well as determine
whether a salvage vehicle can be sold as rebuildable or must be sold for parts
only. Such regulations can reduce the number of potential buyers of vehicles at
Company auctions. The Company is also subject to environmental regulations. The
Company believes that it is in compliance with all applicable material
regulatory requirements. The Company will be subject to similar types of
regulations by federal, state and local governmental agencies in new markets and
to continuing legislation in existing markets.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local
laws and regulations governing, among other things, the handling, storage,
transportation and disposal of waste and other materials. The Company believes
that its business, operations and facilities have been and are being operated in
compliance in all material respects with applicable environmental laws and
regulations. The Company believes the overall impact of compliance with laws and
regulations protecting the environment will not have a material effect on its
business operating results and general condition, although no assurance can be
given in this regard.
EMPLOYEES
At December 31, 1997, the Company employed 670 full-time persons.
The Company is not subject to any collective bargaining agreements and believes
that its relationship with its employees is good.
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FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company operates in a changing environment that involves a
number of risks, some of which are beyond the Company's control. The following
discussion highlights some of these risks.
Quarterly Fluctuations. The Company's operating results have in
the past and may in the future fluctuate significantly depending on a number of
factors, some of which are more significant for sales under the purchase
agreement method. These factors include changes in the market value of salvage
vehicles, attendance at salvage auctions, delays or changes in state title
processing, fluctuations in Actual Cash Values ("ACVs") of salvage vehicles,
changes in regulations governing the processing of salvage vehicles, general
weather conditions and the availability and quality of salvage vehicles. The
Company is also dependent upon receiving a sufficient number of total loss
vehicles as well as recovered theft vehicles to sustain its profit margins.
Factors which can effect the number of vehicles received include: reduction of
policy writing by insurance providers which would affect the number of claims
over a period of time and changes in direct repair procedures that would reduce
the number of newer less damaged total loss vehicles that tend to have the
higher salvage values. Additionally in the last few years there has been a
declining trend in theft occurrences. These factors are further aggravated in
the event the Company fails to renegotiate purchase agreement contracts that are
volume and mix dependent on availability of these types of sales. As a result,
the Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as any
indication of future performance. In addition, revenues for any future quarter
are not predictable with any significant degree of accuracy; the Company's
expense levels are relatively fixed. If revenue levels are below expectations,
operating results are likely to be adversely affected. Due to all of the
foregoing factors, it is likely that in some future quarters the Company's
operating results will be below the expectations of public market analysts and
investors.
Quality and Quantity of Inventory Available from Suppliers. The
Company is dependent upon receiving a sufficient number of total loss vehicles
as well as recovered theft vehicles to sustain its profit margins. Factors which
can effect the number of salvage vehicles received include, reduction of policy
writing by insurance providers which would affect the number of claims over a
period of time and the changes in direct repair procedures that would reduce the
number of newer less damaged total loss vehicles that tend to have higher
salvage values. The decreases in the quality and quantity of inventory and in
particular the availability to newer and less damaged vehicles are further
aggravated under the purchase agreement method of salvage and can have a
negative impact on the operating results and financial condition of the Company.
Competition. Historically, the automotive salvage industry has
been highly fragmented. As a result, the Company faces intense competition for
the supply of salvage vehicles from vehicle suppliers, as well as competition
from processors of vehicles from other regional salvage pools. These regional
salvage pools generally process vehicles under the fixed fee consignment method
and generally do not offer the full range of services provided by the Company.
The salvage industry has recently experienced consolidation, however, and the
Company believes its principal publicly-held competitor is Copart, Inc. Copart,
Inc. has effected a number of acquisitions of regional salvage pools and
competes with IAA in most of IAA's geographic markets. Due to the limited number
of vehicle suppliers, competition for salvage vehicles from Copart and regional
suppliers is intense. It is also possible that the Company may encounter further
competition from existing competitors and new market entrants that are
significantly larger and have greater financial and marketing resources. Other
potential competitors could include used car auction companies, providers of
claims software to insurance companies, certain salvage buyer groups and
insurance companies some of which presently supply auto salvage to IAA. While
most insurance companies have abandoned or reduced efforts to sell salvage
without the use of service providers such as the Company, they may in the future
decide to dispose of their salvage directly to customers. There can be no
assurance that the Company will be able to compete successfully against current
or future competitors or that competitive pressures faced by the Company will
not have a material adverse effect on its business, operating results and
financial condition.
Dependence on Key Insurance Company Suppliers. Historically, a
limited number of insurance companies has accounted for a substantial portion of
the Company's revenues. For example, in 1997, vehicles supplied by the Company's
three largest suppliers accounted for approximately 46% of the Company's unit
sales. The largest suppliers, State Farm Insurance, Allstate Insurance
("Allstate"), and Farmers Insurance, each accounted for approximately 19%, 17%,
and 10%, respectively, of the Company's unit sales. A number of other insurance
company suppliers have also contributed to the profitability of the Company
including 20th Century
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Insurance. A loss or reduction in the number of vehicles from any of these
suppliers, or adverse change in the agreements that such suppliers have with the
Company, could have a material adverse effect on the Company's business,
operating results and financial condition.
Purchase Agreement Method of Sale. The Company has entered into a
number of purchase agreements, including agreements with its most significant
insurance suppliers, that obligate the Company to purchase most salvage vehicles
offered to it at a formula percentage of ACV. In recent times, increased ACVs on
which the Company's costs are based have reduced the profitability that the
Company realizes on purchase agreement contracts. The Company has renegotiated
and continues to attempt to renegotiate its agreements with certain of these
suppliers. There can be no assurance, however, that the Company can renegotiate
the terms of these agreements on terms favorable to the Company. The failure to
renegotiate some or all of these agreements could have a material adverse effect
on the Company's operating results and financial condition. In addition, further
increases in ACVs or declines in the market or auction prices for salvage
vehicles could have a material adverse effect on the Company's business,
operating results and financial condition. The Company has added adjustment and
risk-sharing clauses to its new standard purchase agreement contracts designed
to provide some protection to the Company and its customers from certain
unexpected, significant changes in the ACV/salvage price relationship.
Governmental Regulation. The Company's operations are subject to
regulation, supervision and licensing under various federal, state and local
statutes, ordinances and regulations. The acquisition and sale of totaled and
recovered theft vehicles is regulated by state motor vehicle departments in each
of the locations in which the Company operates. Changes in governmental
regulations or interpretations of existing regulations can result in increased
costs, reduced salvage vehicle prices and decreased profitability for the
Company. For example, the Company believes legislation currently being
considered by Congress could have a negative impact on the number of buyers
attending an auction as well as increase some of the costs to those buyers. This
legislation could increase governmental regulation of certain operations of the
Company. In addition to the regulation of sales and acquisitions of vehicles,
the Company is also subject to various local zoning requirements with regard to
the location of its auction and storage facilities. These zoning requirements
vary from location to location. Failure to comply with present or future
regulations or changes in existing regulations could have a material adverse
effect of the Company's business, operating results and financial condition.
Provision of Services as a National or Regional Supplier. The
provision of services to insurance company suppliers on a national or regional
basis require that the Company expends resources and dedicate management to a
small number of individual accounts, resulting in a significant amount of fixed
costs. The development of a referral based national network service, in
particular, has required the devotion of financial resources without immediate
reimbursement of such expenses by the insurance company suppliers.
Integration and Expansion of Facilities. The Company seeks to
increase sales and profitability through acquisition of other salvage auction
facilities, new site expansion and the increase of salvage vehicle volume at
existing facilities. There can be no assurance that the Company will continue to
acquire new facilities on terms economical to the Company or that the Company
will be able to add additional facilities on terms economical to the Company or
that the Company will be able to increase revenues at newly acquired facilities
above levels realized prior to acquisition. The Company's ability to achieve
these objectives is dependent, among other things, on the integration of new
facilities, and their information systems, into its existing operations, the
identification and lease of suitable premises and the availability of capital.
There can be no assurance that this integration will occur, that suitable
premises will be identified or that additional capital will be available to fund
expansion and integration of the Company's business. Any delays or obstacles in
this integration process could have a material adverse effect on the Company's
business, operating results and financial condition. Furthermore, the Company
has limited sources of additional capital available for acquisitions, expansions
and start-ups. The Company's ability to integrate and expand its facilities will
depend on its ability to identify and obtain additional sources of capital to
finance such integration and expansion. In the future, the Company will be
required to continue to improve its financial and management controls, reporting
systems and procedures on a timely basis and expand, train and manage its
employee work force. The failure to improve these systems on a timely basis and
to successfully expand and train the Company's work force could have a material
adverse effect on the Company's business, operating results and financial
condition.
9
<PAGE> 10
Volatility of Stock Price. The market price of the Company's
common stock has been and could continue to be subject to significant
fluctuations in response to various factors and events, including variations in
the Company's operating results, the timing and size of acquisitions and
facility openings, the loss of vehicle suppliers or buyers, the announcement of
new vehicle supply agreements by the Company or its competitors, changes in
regulations governing the Company's operations or its vehicle suppliers,
environmental problems or litigation.
Environmental Regulation. The Company's operations are subject to
federal, state and local laws and regulations regarding the protection of the
environment. In the salvage vehicle auction industry, large numbers of wrecked
vehicles are stored at auction facilities for short periods of time. Minor
spills of gasoline, motor oils and other fluids may occur from time to time at
the Company's facilities and may result in soil, surface water or groundwater
contamination. Petroleum products and other hazardous materials are contained in
aboveground or underground storage tanks located at certain of the Company's
facilities. Waste materials such as waste solvents or used oils are generated at
some of the Company's facilities and are disposed of as nonhazardous or
hazardous wastes. The Company believes that it is in compliance in all-material
respects with applicable environmental regulations and does not anticipate any
material capital expenditure for environmental compliance or remediation.
Environmental laws and regulations, however, could become more stringent over
time and there can be no assurance that the Company or its operations will not
be subject to significant compliance costs in the future. To date, the Company
has not incurred expenditures for preventive or remedial action with respect to
contamination or the use of hazardous materials that have had a material adverse
effect on the Company's results of operations or financial condition. The
contamination that could occur at the Company's facilities and the potential
contamination by previous users of certain acquired facilities create the risk,
however, that the Company could incur substantial expenditures for preventive or
remedial action, as well as potential liability arising as a consequence of
hazardous material contamination, which could have a material adverse effect on
the Company.
ITEM 2. PROPERTIES.
The Company's principal administrative, sales, marketing and
support functions are located in Schaumburg, Illinois. The Company moved in mid
1997 to a building providing approximately 26,000 square feet of available space
in Schaumburg, Illinois. The lease on the office space in Schaumburg expires in
May 2004. The Company and its subsidiaries also lease approximately 43
properties in Arizona, California, Florida, Georgia, Hawaii, Illinois, Maryland,
Massachusetts, Michigan, Minnesota, Nebraska, New Jersey, New York, North
Carolina, Oregon, Texas, Virginia and Washington. The Company owns 8 properties
located in Illinois, Kansas, Massachusetts and New York. Most of these
properties are used primarily for auction and storage purposes. Management
believes that the Registrant's properties are adequate for its current needs and
that suitable additional space will be available as required.
ITEM 3. LEGAL PROCEEDINGS.
During the second quarter of 1997, the Company settled a securities
class action lawsuit that had been pending against the Company and certain of
its present and former officers and directors, in the United States District
Court for the Central District of California. The litigation was settled for
$3.75 million, the substantial portion of which was paid by the Company's
directors' and officers' liability insurance company. The difference of $750,000
was recognized as a special charge to earnings in the second quarter of 1997. In
February 1998, the settlement was approved by the court.
Bradley Scott, Chairman of the Board of the Company, is a defendant in
a lawsuit arising out of his alleged promise to share the proceeds from the sale
of his stock in Los Angeles Auto Salvage, Inc., a corporate predecessor of the
Company, with a former business associate. In February 1998, the lawsuit was
settled by Mr. Scott. Mr. Scott believes he is entitled to indemnification from
the company for any amounts he will pay as a result of the settlement of the
lawsuit. The Company does not believe that Mr. Scott has any right to
indemnification and intends to defend vigorously any claim that may be asserted.
10
<PAGE> 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter ended December 31, 1997.
Executive Officers of the Company
The following table sets forth the names, ages and offices of all of the
executive officers of the Company as of March 31, 1998:
<TABLE>
<CAPTION>
Name Age Office Held
---- --- -----------
<S> <C> <C>
James P. Alampi 51 President, Chief Executive Officer and Director
Linda C. Larrabee 50 Senior Vice President, Finance, Chief Financial Officer and Secretary
Kevin J. Code 37 Vice President, Sales and Marketing
Gerald C. Comis 49 Vice President, Customer Service and Industry Relations
Donald J. Comis 39 Vice President, Central Division
Peter B. Doder 37 Vice President, Western Division
Stephen L. Green 42 Vice President, Corporate Controller
Ronald W. Hope 53 Vice President, Business Development
Marcia A. McAllister 46 Vice President, Public Affairs
Charles E. Rice 35 Vice President, Information Systems
Gaspare G. Ruggirello 40 Vice President, General Counsel
Patrick T. Walsh 35 Vice President, Eastern Division
</TABLE>
JAMES P. ALAMPI became President, Chief Executive Officer and a
Director of the Company in March 1996. As President and Chief Executive Officer,
Mr. Alampi oversees the Company's overall corporate administration as well as
strategic planning. Prior to joining the Company, Mr. Alampi served as President
of Van Waters & Rogers Inc., a subsidiary of Univar Corporation, a chemical
distribution company ("Univar"), from 1992 to 1995.
LINDA C. LARRABEE became Senior Vice President, Finance, Chief
Financial Officer and Secretary in June 1996. Ms. Larrabee is responsible for
cash management and cash control as well as financial accounting, planning and
reporting. Prior to joining the Company, Ms. Larrabee served as Vice President,
Information Systems of Van Waters & Rogers Inc. from 1992 to 1996. Prior to that
time, Ms. Larrabee served as Vice President, Information Systems for Hitachi
Data Systems from 1989 to 1992 and as Vice President, Finance for National
Advanced Systems from 1982 to 1989.
KEVIN J. CODE has been Vice President, Sales and Marketing of the
Company since February 1995. Mr. Code is primarily responsible for sales and
marketing to vehicle suppliers. From 1983 to 1995, Mr. Code held various
positions with CCC Information Services, Inc., including Group Vice President
and Vice President - Regional Account Manager.
GERALD C. COMIS became Vice President Customer Service and Industry
Relations in February 1997. Mr. Comis is responsible for overseeing operational
procedures, training, and systems implementation rollout as well as acquisition
due diligence and the integration of new businesses. From October 1996 to
February 1997 Mr. Comis served as Vice President, Western Division. From April
1994 to October 1996, Mr. Comis served as Vice President, Field Operations of
the Company. From January 1994 to April 1994, Mr. Comis served as a Vice
President of Underwriters Salvage Company, a wholly owned subsidiary of the
Company, which was merged into the Company. From 1968 to January 1994, Mr. Comis
held various positions with Underwriters, prior to the January 1994 acquisition
by the Company, including Branch Manager, Vice President and Executive Vice
President.
11
<PAGE> 12
DONALD J. COMIS has been Vice President of the Central Division since
October 1996. Mr. Comis is responsible for the sales and operational functions
of the Central Division. From January 1994 to October 1996, Mr. Comis served as
Regional General Manager of the Company. From 1979-1994, Mr. Comis served
Underwriters Salvage Company in many capacities, including Director of
Operations, Asst. Vice President of Operations and Vice President of Operations.
PETER B. DODER became Vice President of the Western Division in
February 1997. Mr. Doder is responsible for the sales and operational functions
of the Western Division. From February 1996 to February 1997 Mr. Doder was Vice
President, Financial Planning & Analysis of the Company. From June 1992 through
February 1996, Mr. Doder held various positions with the Company, including
Regional Sales Manager, Manager of Marketing Support & Analysis and Director of
Marketing.
STEPHEN L. GREEN has been Vice President, Corporate Controller, and
Assistant Secretary of the Company since February 1997. Mr. Green is responsible
for internal management and external reporting, taxes and risk management. Prior
to joining the Company, Mr. Green served as Manager of Operations Accounting of
Van Waters & Rogers Inc. from 1989 to February 1997.
RONALD W. HOPE became Vice President, Business Development in February
1998. Mr. Hope is responsible for evaluating and establishing new business
opportunities for IAA. Prior to joining the Company, Mr. Hope served as Senior
Vice President of Operations for ADESA Corporation. Prior to that time he served
as Director of Company Services for ADT Automotive Group and as New Vehicle Prep
Center General Manager for Chrysler Corporation.
MARCIA A. MCALLISTER has been Vice President, Public Affairs of the
Company since February 1995. Ms. McAllister is responsible for monitoring
legislation and participating on behalf of the Company with a variety of
industry and agency groups. From March 1994 to February 1995, Ms. McAllister was
a consultant to the Company. From June 1986 to January 1994, Ms. McAllister held
a variety of positions with Underwriters including Vice Chairman and General
Counsel.
CHARLES E. RICE has been Vice President, Information Systems of the
Company since September 1996. Mr. Rice is responsible for the implementation and
development of the information systems. Prior to joining the Company, Mr. Rice
served as Director of Marketing Information Services of Van Waters & Rogers Inc.
from 1994 to 1996 and Manager of Distribution Information Services from 1991 to
1994.
GASPARE G. RUGGIRELLO has been Vice President and General Counsel of
the Company since July 1997. He is responsible for the general legal affairs of
the Company including SEC compliance and filings, mergers and acquisitions,
corporate finance and litigation. Prior to joining the Company, Mr. Ruggirello
served as Senior Attorney & Assistant Secretary of Borg-Warner Automotive, Inc.
from 1993 to 1997. Prior to that time, Mr. Ruggirello served as Senior Attorney
for Borg-Warner Corporation from 1989 to 1993.
PATRICK T. WALSH has been Vice President, Eastern Division since
October 1996. Mr. Walsh is responsible for the sales and operational functions
of the Eastern Division. From November 1994 to October 1996, Mr. Walsh was
responsible for operational planning. From January 1994 to November 1994, Mr.
Walsh served as Vice President, Operations West of the Company and from
September 1991 through January 1994, Mr. Walsh served as Vice President,
Operations. From April 1988 to September 1991, Mr. Walsh held various positions
in the Company, including Branch Operations Manager.
Officers are appointed to serve, at the discretion of the Board of
Directors, until their successors are appointed. Ms. McAllister is the wife of
Mr. Christopher G. Knowles; a member of the Board of Directors, and Donald J.
Comis is the brother of Gerald C. Comis.
12
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
The Registrant's Common Stock is traded on the Nasdaq National
Market tier of The Nasdaq Stock Market under the symbol IAAI. The following
table sets forth the range of high and low per share bid information, as
reported on the Nasdaq National Market for each quarter of fiscal 1997 and 1996.
At March 15, 1998, the Registrant had 204 holders of record of its Common Stock,
approximately 1,500 beneficial owners and 11,307,454 shares outstanding.
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996
----------- -----------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $10.63 $6.50 $11.25 $ 8.25
Second Quarter 9.50 6.50 13.37 8.75
Third Quarter 14.25 8.00 10.87 7.75
Fourth Quarter 13.63 10.00 11.12 8.75
</TABLE>
During the past two fiscal years, the Registrant did not declare
or pay any cash dividends on its Common Stock. The Registrant currently plans to
retain all of its earnings to support the development and expansion of its
business and has no present intention of paying any dividends on the Common
Stock in the foreseeable future. In addition, the Registrant's credit agreements
between the Registrant and its bank limit the Registrant's ability to pay cash
dividends. The Board of Directors of the Registrant reviews the dividend policy
periodically to determine whether the declaration of dividends is appropriate.
13
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA.
The tables below summarize the Selected Consolidated Financial Data of
the Registrant as of and for each of the last five fiscal years. This selected
financial information should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Report. The selected consolidated financial data presented
below have been derived from the Company's Consolidated Financial Statements
that have been audited by KPMG Peat Marwick LLP, independent certified public
accountants, whose report is included herein covering the Consolidated Financial
Statements as of December 31, 1997 and 1996 and for each of the three years in
the period ended December 31, 1997. The statement of earnings for the year ended
December 31, 1994 and 1993 and the balance sheet data as of December 31, 1995,
1994 and 1993 are derived from audited Consolidated Financial Statements not
included herein.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------- --------------- -------------- ----------- -----------
(in thousands except per share amounts)
Selected Statement of Earnings
Data
<S> <C> <C> <C> <C> <C>
Net sales $259,325 $281,893 $ 257,996 $ 172,125 $ 104,086
Earnings from operations(1) 10,203 7,561 6,885 19,145 10,624
Earnings 4,495 3,102 3,136 10,985 6,618
Net earnings per
common share (2) .40 .27 .27 .98 .74
Weighted average common
shares outstanding (2) 11,337 11,333 11,421 11,225 8,968
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
----------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------- -------------- -------------- ---------- -----------
Selected Balance Sheet Data
<S> <C> <C> <C> <C> <C>
Working capital $ 25,708 $ 21,665 $ 12,187 $ 12,055 $ 28,781
Total assets 207,072 214,026 210,633 173,641 143,925
Long-term debt, excluding
current installments 20,246 26,670 28,973 4,409 1,058
Total shareholders' equity 151,212 146,589 143,381 139,897 123,689
</TABLE>
(1) Amount includes special charges of $750,000, $1,395,000 and $4,226,000
in 1997, 1996 and 1995, respectively. See Note 9 to the Consolidated
Financial Statements.
(2) Earnings per share and weighted average common shares outstanding are
presented on a diluted basis. See Note 1 and Note 10 to the Consolidated
Financial Statements.
14
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The discussion in this section contains forward-looking information that is
subject to certain risks, trends and uncertainties that could cause actual
results to differ materially from those projected, expressed or implied by such
forward looking information. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in "Factors
That May Affect Future Results" below and "Management's Discussion and Analysis
of Financial Condition and Results of Operations." Among these risks are
legislative acts, weather conditions, changes in the market value of salvage,
outcome of litigation, competition, quality and quantity of inventory available
from suppliers, and dependence on key insurance company suppliers.
OVERVIEW
The Company offers insurance companies and other vehicle suppliers
cost-effective salvage processing solutions through a variety of different
methods of sale, including fixed fee consignment, purchase agreement and
percentage of sale consignment. Under the purchase agreement sales method, the
vehicle is owned by the Company and the sales price of the vehicle is recorded
in revenue. Under the fixed fee and percentage of sale consignment sales
methods, the vehicle is not owned by the Company and only the fees associated
with the processing and sale of the vehicle are recorded in net sales. By
assuming some of the risk inherent in owning the salvage vehicle instead of
selling on a consignment basis, the Company is potentially able to increase
profits by improving the value of the salvage vehicle prior to the sale.
Under the purchase agreement method, IAA generally pays the
insurance company a pre-determined percentage of the Actual Cash Value ("ACV")
to purchase the vehicle, pursuant to the purchase agreement. ACVs are the
estimated pre-accident fair value of a vehicle, adjusted for additional
equipment, mileage and other factors. Until the significant rise in used car
prices and ACVs during 1995, the conversion from consignment sales to purchase
agreement sales generally benefited the Company. During 1995, however, used car
prices and ACVs rose significantly. Despite the increase in used car prices and
ACVs, prices at salvage auctions did not increase correspondingly. Because the
Company's purchase price is fixed by contract, the increased ACVs can and has
reduced profitability on the sale of vehicles under the purchase agreement
method.
The Company has renegotiated some of its purchase agreement
contracts and seeks to renegotiate certain others. If the relationship between
ACVs and salvage prices remains at its present level, the Company may continue
to encounter reduced profitability from purchase agreement contracts until they
expire or are renegotiated. The Company continues to offer purchase agreements
to those customers who select it, but generally at a lower percentage of ACV
than previously offered to customers, based on current vehicle values. The
Company has added adjustment and risk-sharing clauses to its new standard
purchase agreement contracts designed to provide some protection to the Company
and its customers from certain unexpected, significant changes in the
ACV/salvage price relationship.
Since its initial public offering, the Company has grown primarily
through a series of acquisitions to now include 46 locations as of December 31,
1997. In February of 1998, the Company acquired Auto Disposal Company, Inc. ADC
operated two pools in Alabama.
The Company's operating results are subject to fluctuations,
including quarterly fluctuations, that can result from a number of factors, some
of which are more significant for sales under the purchase agreement method. See
"Factors That May Affect Future Results" above for a further discussion of some
of the factors that affect or could affect the Company's business, operating
results and financial condition.
RESULTS OF OPERATIONS
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
Net sales of the Company decreased to $259,325,000 for the year
ended December 31, 1997, from $281,893,000 in 1996, an 8% decrease. This is
largely the result of the change in mix of unit volume from
15
<PAGE> 16
purchase agreement to the consignment method due to the company's decision to
renegotiate or terminate specific, unprofitable purchase agreements. Unit volume
decreased 1%, as compared to the same period in 1996, while existing facilities
volume decreased by the same 1%. Net sales and unit volume growth from existing
facilities were the same as for the Company overall as there were no significant
acquisitions or new facility startups in 1996 or 1997. The purchase agreement
sales method of processing accounted for 134,000 vehicles, down 10% from 1996,
or 30% of total volume.
Gross profit was $59,342,000 for the year ended December 31,
1997, compared to $58,749,000 in 1996, a 1% increase. Gross profit per unit of
$135 for the year ended December 31, 1997 was 2% higher than for the comparable
period of 1996, largely due to the Company's decision to renegotiate or
terminate specific, unprofitable purchase agreements.
Direct operating expenses decreased to $44,599,000 for the year
ended December 31, 1997, from $46,015,000 in 1996, a 3% decrease. The decrease
in direct operating expenses was the result of management's focus on process
enhancements and expense control during 1997. Direct operating expenses as a
percentage of net sales were 1% higher than for the same period in 1996, due to
fewer units sold. Amortization of acquisition costs of $3,790,000 for the year
ended December 31, 1997 were flat as compared to $3,778,000 for the comparable
period in 1996.
During 1997, the Company settled a securities class action
lawsuit that had been pending against the Company and certain of its present and
former officers and directors, in the United States District Court for the
Central District of California. The litigation was settled for $3.75 million,
the substantial portion of which was paid by the Company's directors' and
officers' liability insurance company. The difference of $750,000 was recognized
as a special charge in 1997. In February 1998, the settlement was approved by
the court.
Interest expense decreased to $2,700,000 for the year ended
December 31, 1997, from $3,009,000 in 1996. The decrease in interest expense is
mostly attributable to the repayment of borrowings under the Company's
$15,000,000 Revolving Line of Credit Facility.
Interest income decreased to $821,000 for the year ended December
31, 1997, from $890,000 in 1996. The change in interest income was attributable
to a decrease in interest-bearing investments liquidated during 1996 to repay
several notes payable to sellers of certain acquisitions and the proceeds from
long-term borrowings under the Company's $15,000,000 revolving line of credit
facility.
Income taxes increased to $3,829,000 for the year ended December
31, 1997, from the $2,340,000 in 1996. The increase of $1,489,000 was the result
of a higher tax rate incurred by the Company in 1997 and increased net earnings
before taxes. (See Note 4, Notes to the Consolidated Financial Statements).
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
Net sales of the Company increased to $281,893,000 for the year
ended December 31, 1996, from $257,996,000 in 1995, a 9% increase. Sales were
higher due to a full year of revenue from acquired operations, same store growth
and fee increases. Unit volume increased 16%, as compared to the same period in
1995, with most of the unit growth resulting from acquired operations, while
existing facilities volume increased 2%. Net sales growth from existing
facilities increased 5%, as a result of same store growth and increased fees.
The purchase agreement sales method of processing accounted for 148,000
vehicles, up 8% from 1995, or 33% of total volume.
Gross profit increased 3% to $58,749,000 for the year ended
December 31, 1996, from $56,805,000 for the same period in 1995. This increase
was primarily the result of a full year of revenue from acquired operations.
Direct operating expenses increased to $46,015,000 for the year
ended December 31, 1996, from $42,308,000 in 1995, a 9% increase. The increase
in direct operating expenses was the result of the acquisitions that were made
during 1995. Direct operating expenses as a percentage of net sales were flat
compared to the same period in 1995. Amortization of acquisition costs increased
to $3,778,000 for the year ended December 31,
16
<PAGE> 17
1996 from $3,386,000 for the comparable period in 1995, mostly as a result of a
full year of amortization of goodwill for the acquisitions.
Special charges of $1,395,000 were incurred in the year ended
1996. During 1996, the Company hired a new President and CEO, a new Sr. Vice
President and CFO, a new Vice President of Information Services, and
restructured its operations such that instead of one Vice President of
Operations, there are now three Divisional Vice Presidents. The new management
team has spent considerable time in determining its strategic plan. In looking
towards implementing its strategic plan, the Company established its corporate
headquarters in Illinois and evaluated past contracts still in effect. As a
result of this evaluation, the Company decided to recognize, as a special
charge, the expense related to the termination of pre-existing agreements that
no longer have value to the Company's current strategy. The Company also entered
into an agreement with Bradley S. Scott, former Chief Executive Officer that
terminates his employment agreement with the Company and provides that he will
serve as an outside Director and Chairman of the Board. The Company completed
the centralization of the corporate groups at its corporate headquarters in
Illinois in the summer of 1997and has negotiated a buyout of a long-term lease
for property located in Woodland Hills, California. The net of these items
recognized as special charges was $1,395,000.
Interest expense increased to $3,009,000 for the year ended
December 31, 1996, from $2,345,000 in 1995. The increase in interest expense is
mostly attributable to a full year's interest on notes payable to sellers of
certain acquisitions completed in 1995 and for a full year's interest on a
portion of the $15,000,000 Revolving Line of Credit Facility (the "Facility").
Interest income decreased to $890,000 for the year ended December
31, 1996, from $913,000 in 1995. The change in interest income was attributable
to a decrease in interest-bearing investments liquidated during 1995 to
consummate acquisitions.
Income taxes increased to $2,340,000 for the year ended December
31, 1996, from the $2,317,000 in 1995. This slight increase of $23,000 was
primarily the result of a slightly higher tax rate incurred by the Company in
1996. (See Note 4, Notes to the Consolidated Financial Statements).
FINANCIAL CONDITION AND LIQUIDITY
At December 31, 1997, the Company had current assets of
$52,256,000, including $9,634,000 of cash and cash equivalents, current
liabilities of $26,548,000 and working capital of $25,708,000. The $4,043,000
increase in working capital from December 31, 1996 was principally related to
net earnings and the elimination of contingencies related to specific
acquisitions. On April 4, 1997, the Company refinanced its Revolving Line of
Credit Facility. This line of credit agreement is on similar terms to the prior
one. The $15,000,000 Facility is unsecured, bears interest at the bank's prime
rate or LIBOR, as defined, and matures on April 1, 2000. There was no
outstanding balance on the line at December 31, 1997.
At December 31, 1997, the Company's indebtedness consisted mostly
of 8.6% Senior Notes approximating $19,715,000, amounts due to the sellers
related to an acquisition aggregating $2,293,000, with imputed interest at 7.5%
and amounts due to the sellers of smaller acquisitions aggregating $272,000,
which bear interest at 8.0%.
Long-term liabilities also include a post-retirement benefits
liability relating to the Underwriters Salvage Company acquisition of
approximately $3,831,000
Capital expenditures were approximately $4,608,000 for the year
ended December 31, 1997. These capital expenditures included upgrading and
expanding the Company's facilities and management information systems. The
Company currently leases most of its facilities and other properties.
The Company believes that cash generated from operations and its
borrowing capacity will be sufficient to fund capital expenditures and provide
adequate working capital for operations for the next twelve months. Part of the
Company's plan is continued growth possibly through new facility start-ups,
acquisitions, and the development of new claims processing services. At some
time in the future, the Company may require additional financing. There can be
no assurance that additional financing, if required, will be available on
favorable terms.
17
<PAGE> 18
The Company's operating results have not historically been
materially affected by inflation.
RECENT DEVELOPMENTS
Bradley Scott, Chairman of the Board of the Company, is a defendant in
a lawsuit arising out of his alleged promise to share the proceeds from the sale
of his stock in Los Angeles Auto Salvage, Inc., a corporate predecessor of the
Company, with a former business associate. In February 1998, the lawsuit was
settled by Mr. Scott. Mr. Scott believes he is entitled to indemnification from
the company for any amounts he might pay as a result of the adjudication or
settlement of the lawsuit. The Company does not believe that Mr. Scott has any
right to indemnification and intends to defend vigorously any claim that may be
asserted.
McKinsey & Co. has been retained to assist the Company with a recently
started project. The project includes a review of the company's current core
processes, as well as the identification and development of new customer valued
services focusing on opportunities to reduce claims processing costs currently
incurred by the insurance industry. The scope of the project also includes the
evaluation and development of new business offerings that leverage the company's
current competencies, geographic presence and assets. Based on the initial
results of the project, the estimated cost of the project is expected to be
approximately $1,000,000. McKinsey & Co. is one of the leading providers of
consulting services to the insurance industry.
Statement of Financial Accounting Standards ("S.F.A.S.") No. 130,
"Reporting Comprehensive Income", was issued in June 1997 and is effective for
fiscal years beginning after December 15, 1997. S.F.A.S. No. 130 requires that
changes in the balances of certain items that are reported directly in a
separate component of equity in a statement of financial position also be
reported in a separate statement of comprehensive income. The Company believes
that S.F.A.S. No. 130 will not materially affect the statements of operations,
financial position or cash flows.
S.F.A.S. No. 131, "Disclosures about Segments of an Enterprise and
Related Information", was issued in June 1997 and is effective for fiscal years
beginning after December 15, 1997. S.F.A.S. No. 131 establishes new standards
for disclosing information about operating segments. The Company believes that
S.F.A.S. No. 131 will not materially affect the statements of operations,
financial position or cash flows.
The Company has conducted a review of its computer systems to identify
the systems that could be affected by the "Year 2000" issue. Based on the
results of that review, modifications were made to the Company's systems. Based
on the review, the Company believes its computer systems are Year 2000 compliant
in all material respects. Total estimated costs incurred in modifying the
Company's systems, were not material.
ITEM 7A. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14(a) for an index to the financial statements and
supplementary financial information, which are attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
18
<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to Directors is included under the caption
"Nominees" in the Registrant's Proxy Statement (the "Proxy Statement") to be
filed with the Securities and Exchange Commission and incorporated herein by
reference. The information under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Proxy Statement to be filed with the Securities and
Exchange Commission is incorporated herein by reference. Information with
respect to Executive Officers may be found on pages 11 to 12 herein, under the
caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION.
Information required by this item is included under the captions
"Compensation of Directors," "Executive Compensation," "Stock Options",
"Compensation of Directors", and Change-in-Control Arrangements" and
"Compensation Committee Interlocks and Insider Participation" in the
Registrant's Proxy Statement to be filed with the Securities and Exchange
Commission and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information required by this item is included under the caption
"Ownership of Securities" in the Registrant's Proxy Statement to be filed with
the Securities and Exchange Commission and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required by this item is included under the caption
"Certain Relationships and Related Transactions in the Registrant's Proxy
Statement to be filed with the Securities and Exchange Commission and is
incorporated herein by reference.
19
<PAGE> 20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
PAGE
(A) 1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ----
The following Consolidated Financial Statements of Insurance Auto Auctions,
Inc. and its subsidiaries are filed as part of this report on Form 10-K:
<S> <C>
Independent Auditors' Report.................................................. 26
Consolidated Balance Sheets - December 31, 1997 and
December 31, 1996............................................................. 27-28
Consolidated Statements of Earnings - Years ended
December 31, 1997, 1996 and 1995 ............................................. 29
Consolidated Statements of Shareholders' Equity-
Years ended December 31, 1997, 1996 and 1995.................................. 30
Consolidated Statements of Cash Flows - Years ended
December 31, 1997, 1996 and 1995.............................................. 31-32
Notes to Consolidated Financial Statements.................................... 33-44
</TABLE>
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because the matter or
conditions are not present or the information required to be
set forth therein is included in the Consolidated Financial
Statements and related Notes thereto.
3. EXHIBITS
See Item 14(c) below.
(B) REPORTS ON FORM 8-K. No reports on Form 8-K were filed by the
Company during the three-month period ended December 31, 1997.
(C) EXHIBITS
<TABLE>
<CAPTION>
Exhibit No
Description
<S> <C>
3.1 Articles of Incorporation of the Registrant, as filed with the
Illinois Secretary of State on August 7, 1997.
3.2 Bylaws of the Registrant.
4.1(11) Fifth Amended and Restated Registration Rights Agreement,
dated September 23, 1994, by and among the Registrant, William
W. Liebeck, Bradley S. Scott, Bob F. Spence, Corinne Spence,
Jimmie A. Dougherty, Patricia L. Dougherty and Midwest Auto
Pool Corporation.
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C>
4.2(1) Warrant, dated January 18, 1990, issued by Registrant to
Westinghouse Credit Corporation ("WCC") to purchase 176,056
shares of Series A Common Stock of Registrant ("WCC Warrant").
4.3(1) Specimen Stock Certificate.
4.4(7) Stockholder Agreement dated December 1, 1993, by and among the
Registrant, Tech-Cor, Inc., Bradley S. Scott, Bob F. Spence
and William L. Liebeck.
4.5(7) Registration Agreement dated December 1, 1993, by and among
the Registrant and Tech-Cor.
4.5(10) Note Agreement, dated as of December 1, 1994 among the
Registrant and the purchasers listed therein.
9.2(1) Letter agreement, dated September 29, 1989, between Bradley S.
Scott and L.A.A.S. Acquisition Registrant.
10.2(1) Non-Competition and Confidentiality Agreement dated January
17, 1990, by and among the Registrant, L.A.A.S. Acquisition
Company, Bradley S. Scott and Jillian Scott.
10.15+(1) Salvage Purchase Agreement by and between Registrant and
Allstate Insurance Company (Ventura, Santa Barbara, and San
Luis Obispo Counties).
10.19+(1) Salvage Purchase Agreement by and between Registrant and State
Farm Insurance Company.
10.29(2)* 1991 Employment Agreement, dated September 30, 1991, between
Registrant and Bradley S. Scott together with promissory note
and stock pledge agreement.
10.35(5)* Insurance Auto Auctions, Inc. 1991 Stock Option Plan, as
amended and restated.
10.36(8)* Form of Notice of Grant of Stock Option -- employee, officer.
10.37(4)* Form of Non-Statutory Stock Option Agreement, Insurance Auto
Auctions, Inc. 1991 Stock Option Plan, as restated (including
Form of Notice of Grant of Stock Option) -- employee.
10.38(4)* Form of Stock Option Agreement: Non-Employee Director,
Automatic Option Grant, Insurance Auto Auctions, Inc. Stock
Option Plan, as restated (including Form of Notice of Grant of
Stock Option).
10.39(4)* Form of Incentive Stock Option Agreement, Insurance Auto
Auctions, Inc. 1991 Stock Option Plan, as restated (including
Form of Notice of Grant of Stock Option) -- employee.
10.40(4)* Form of Non-Statutory Stock Option Agreement, Insurance Auto
Auctions, Inc. 1991 Stock Option Plan, as restated (including
Form of Notice of Grant of Stock Option) -- officer.
10.41(4)* Form of Incentive Stock Option Agreement, Insurance Auto
Auctions, Inc. 1991 Stock Option Plan, as restated (including
Form of Notice of Grant of Stock Option) -- officer.
10.49(1) Common Stock Purchase Agreement dated as of October 29, 1989,
by and among L.A.A.S. Acquisition Company, Bradley S. Scott
and Jillian Scott.
10.50(1) Stock Exchange Agreement and Plan of Reorganization, dated
October 7, 1991, by and between Bradley S. Scott and RMW.
10.52(2) Termination Agreement by and among Registrant, WCC, RMW,
Middleton Holdings, Ltd., Robert H. Kenmore, Ayse M. Kenmore,
William W. Liebeck and Michael W. Gibbons.
</TABLE>
21
<PAGE> 22
<TABLE>
<S> <C>
10.53(2) Stock Pledge Agreement, dated October 31, 1991, by and among
WCC, Registrant and William W. Liebeck.
10.61(3) Asset Purchase Agreement, dated as of January 17, 1992, by and
among Registrant, MASP Acquisition Corp. ("MASP"), the
Registrant's wholly owned subsidiary, M&M Auto Storage Pool,
Inc. ("M&M") and Melvin R. and Marian Martin.
10.65(3) Exclusive Towing Services Agreement dated January 30, 1992, by
and between MASP and M&M.
10.66(3) Facilities Lease Agreement dated January 17, 1992, by and
between Melvin R. Martin and MASP.
10.81(3) Indemnification Agreement dated January 30, 1992, by and
between Registrant and Melvin R. Martin.
10.118(5)* Insurance Auto Auctions, Inc. Employee Stock Purchase Plan.
10.119(5) Indemnification Agreement dated June 1, 1993, by and between
the Registrant and Bob F. Spence. Identical Indemnification
Agreements were entered into by and between the Registrant and
each of Susan B. Gould, William W. Liebeck, William L.
Overell, Bradley S. Scott, Thomas J. O'Malia, Christopher G.
Knowles and Richard Rosenthal.
10.122(7) Asset Purchase Agreement dated December 1, 1993, by and
between the Registrant, BC Acquisition Corp. (a wholly owned
subsidiary of Registrant ("BCAC") and Tech-Cor, Inc.
("Tech-Cor").
10.123(7)+ Salvage Agreement by and between the Registrant and Allstate
Insurance Company.
10.124(7) License Agreement, dated December 1, 1993, by and between BCAC
and Allstate Insurance Company.
10.125(7) Transition Agreement dated December 1, 1993, by and between
BCAC and Tech-Cor.
10.126(7) Lease, dated December 1, 1993, by and between Allstate
Insurance Company and BCAC.
10.127(7) Guaranty, dated December 1, 1993, by Allstate Insurance
Company and delivered to the Registrant and BCAC.
10.130(9) Agreement and Plan of Reorganization, dated January 20, 1994,
among the Registrant, USC Acquisition Corp., Underwriters
Salvage Company and the shareholders of Underwriters Salvage
Company.
10.131(9) Agreement of Merger, dated January 20, 1994, by and among
Underwriters Salvage Company, USC Acquisition Corp. and the
Registrant.
10.132(9) Escrow Agreement, dated January 20, 1994, by and among the
Registrant, William W. Liebeck, USC Acquisition Corp. and all
of the shareholders of Underwriters Salvage Company.
10.134(9) Registration Rights Agreement dated January 20, 1994, by and
among, the Registrant, Christopher G. Knowles, Gerald C.
Comis, F. Peter Haake and Donald J. Comis.
10.135(12) Indemnification Agreement dated January 20, 1994, between the
Registrant and Christopher G. Knowles.
10.136(12)* Letter Agreement, dated August 22, 1994, between the
Registrant and Bradley S. Scott.
</TABLE>
22
<PAGE> 23
<TABLE>
<S> <C>
10.137(12) Indemnification Agreement dated November 15, 1994, between the
Registrant and Glen E. Tullman.
10.138(12)* Consulting Agreement dated November 15, 1994, between the
Registrant and Glen E. Tullman.
10.139(12) Indemnification Agreement dated February 22, 1995, between the
Registrant and Richard A. Rosenthal. Identical Indemnification
Agreements were entered into by and between the Registrant and
Kevin J. Code, Gerald C. Comis, Marcia A. McAllister, Patrick
T. Walsh and William L. Warburton.
10.140(13) Stock Purchase Agreement by and among Registrant and ADB
Auctions Systems, Inc., ADBCO Acquisition Corp. and the
shareholders of ADB Auction Systems, Inc. dated June 16, 1995.
10.141(13) Stock Purchase Agreement by and among Registrant and ASC
Auctions, Inc., ADBCO Acquisition Corp. and the shareholders
of ASC Auctions, Inc. dated June 16, 1995.
10.142(13) Form of Promissory Notes dated June 16, 1995.
10.146(15)+ Revised Salvage Agreement by and between the Registrant and
Allstate Insurance Company dated April 29, 1996.
(10.147(15)* Employment Agreement by and between the Registrant and James
P. Alampi dated March 11, 1996.
10.148(16) Letter Agreement by and between the Registrant and Bradley S.
Scott dated December 5, 1996.
10.149* Form of Change of Control Employment Agreement by and between
the Company and certain of its executive officers.
10.150(17) Revolving Credit Agreement between the Registrant and LaSalle
National Bank dated as of April 4, 1997.
10.151 Amendment to Revolving Credit Agreement dated as of December
1, 1997.
10.152(17) Insurance Auto Auctions, Inc. Employee Stock Purchase Plan, as
amended as of June 18, 1997.
21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP.
24.1 Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- ---------------------
23
<PAGE> 24
<TABLE>
<S> <C>
(1) Incorporated by reference from an exhibit filed with the Registrant's
Registration Statement on Form S-1 (File No. 33-43247) declared
effective by the Securities and Exchange Commission ("SEC") on November
20, 1991.
(2) Incorporated by reference from an exhibit included in the Registrant's
Annual Report on Form 10-K (File No. O-19594) for the fiscal year ended
December 31, 1991.
(3) Incorporated by reference from an exhibit included in the Registrant's
Current Report on Form 8-K (File No. O-19594) filed with the SEC on
January 31, 1992.
(4) Incorporated by reference from an exhibit included in the Registrant's
Annual Report on Form 10-K (File No. O-19594) for the fiscal year ended
December 31, 1992.
(5) Incorporated by reference from an exhibit included in the Registrant's
Quarterly Report on Form 10-Q (File No. O-19594) for the fiscal quarter
ended June 30, 1993.
(6) Incorporated by reference from an exhibit included in the Registrant's
Quarterly Report on Form 10-Q (File No. O-19594) for the fiscal quarter
ended September 30, 1993.
(7) Incorporated by reference from an exhibit included in the Registrant's
Current Report on Form 8-K (File No. O-19594) filed with the SEC on
December 15, 1993.
(8) Incorporated by reference from an exhibit included in the Registrant's
Annual Report on Form 10-K (File No. O-19594) for the fiscal year ended
December 31, 1993.
(9) Incorporated by reference from an exhibit included in the Registrant's
Current Report on Form 8-K (File No. O-19594) filed with the SEC on
February 3, 1994.
(10) Incorporated by reference from an exhibit included in the Registrant's
Current Report on Form 8-K (File No. O-19594) filed with the SEC on
February 10, 1995.
(11) Incorporated by reference from an exhibit included in the Registrant's
Annual Report on Form 10-K (File No. 0-19594) for the fiscal year ended
December 31, 1994.
(12) Incorporated by reference from an exhibit included in the Registrant's
Annual Report on Form 10-K (File No. O-19594) filed with the SEC on
March 31, 1995.
(13) Incorporated by reference from exhibits included in the Registrant's
Current Report on Form 8-K (File No. O-19594) filed with the SEC on
June 16, 1995, as amended.
(14) Incorporated by reference from an exhibit included in the Registrant's
Quarterly Report on Form 10-Q (File No. O-19594) filed with the SEC on
May 2, 1996 as amended.
(15) Incorporated by reference from an exhibit included in the Registrant's
Quarterly Report on Form 10-Q (File No. O-19594) filed with the SEC on
August 5, 1996 as amended.
(16) Incorporated by reference from an exhibit included in the Registrant's
Annual Report on Form 10-K (File No. 0-1594) for the fiscal year ended
December 31, 1996.
(17) Incorporated by reference from an exhibit included in the Registrant's
Quarterly Report on Form 10-Q (File No. 0-19594) for the fiscal quarter
ended June 30, 1997.
+ Certain portions of this document were granted confidential treatment
pursuant to an order from the SEC.
* This item is a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this form pursuant to Item
601(b)(10)(iii) of Regulation S-K.
</TABLE>
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
INSURANCE AUTO AUCTIONS, INC.
By: /s/ James P. Alampi
James P. Alampi
President and Chief Executive Officer,
Date: March 31, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on this 31st day of March, 1998
<TABLE>
<S> <C>
/s/ James P. Alampi President and Chief Executive Officer, Director
- ------------------------------- (Principal Executive Officer)
James P. Alampi
/s/ Linda C. Larrabee Senior Vice President, Finance, Chief Financial
- ------------------------------- Officer and Secretary (Principal Financial Officer)
Linda C. Larrabee
/s/ Stephen L. Green Vice President, Corporate Controller and
- ------------------------------- Assistant Secretary (Principal Accounting Officer)
Stephen L. Green
/s/ Bradley S. Scott Chairman of the Board of Directors
- -------------------------------
Bradley S. Scott
/s/ Maurice A. Cocca Director
- -------------------------------
Maurice A. Cocca
/s/ Susan B. Gould Director
- -------------------------------
Susan B. Gould
/s/ Christopher G. Knowles Director
- -------------------------------
Christopher G. Knowles
/s/ Melvin R. Martin Director
- -------------------------------
Melvin R. Martin
/s/ Thomas J. O'Malia Director
- -------------------------------
Thomas J. O'Malia
/s/ Glen E. Tullman Director
- -------------------------------
Glen E. Tullman
/s/ John K. Wilcox Director
- -------------------------------
John K. Wilcox
</TABLE>
25
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Insurance Auto Auctions, Inc.:
We have audited the Consolidated Financial Statements of Insurance Auto
Auctions, Inc. and subsidiaries, as listed in the accompanying index. These
Consolidated Financial Statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these Consolidated
Financial Statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the Consolidated Financial Statements referred to above present
fairly, in all material respects, the financial position of Insurance Auto
Auctions, Inc. and subsidiaries as of December 31, 1997 and 1996 and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Chicago, Illinois
February 10, 1998
26
<PAGE> 27
INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 9,634,000 $ 5,888,000
Accounts receivable, net 28,992,000 34,371,000
Inventories 11,762,000 10,162,000
Income taxes - 1,391,000
Other current assets 1,868,000 2,239,000
--------------- ---------------
Total current assets 52,256,000 54,051,000
-------------- --------------
Property and equipment, at cost:
Land and buildings 6,128,000 5,652,000
Furniture and fixtures 1,481,000 1,149,000
Machinery and equipment 16,830,000 15,434,000
Leasehold improvements 13,268,000 12,042,000
-------------- --------------
37,707,000 34,277,000
Less accumulated depreciation and amortization 16,929,000 12,681,000
-------------- --------------
Net property and equipment 20,778,000 21,596,000
Deferred income taxes 2,603,000 2,222,000
Intangible assets, principally goodwill, net 131,435,000 136,157,000
------------- -------------
$207,072,000 $214,026,000
============= =============
</TABLE>
27
<PAGE> 28
INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
<S> <C> <C>
Current installments of long-term debt $ 2,034,000 $ 2,571,000
Accounts payable 16,319,000 18,014,000
Accrued liabilities 7,698,000 11,801,000
Income taxes 497,000 --
------------ ------------
Total current liabilities 26,548,000 32,386,000
------------ ------------
Long-term debt, excluding current installments (Note 2) 20,246,000 26,670,000
Accumulated postretirement benefits obligation (Note 8) 3,831,000 4,173,000
Deferred income taxes 5,235,000 4,208,000
------------ ------------
Total liabilities 55,860,000 67,437,000
------------ ------------
Shareholders' equity:
Preferred stock, par value of $.001 per share
Authorized 5,000,000 shares; none issued -- --
Common stock, par value of $.001 per share Authorized 20,000,000 shares; issued
and outstanding 11,299,561 and 11,282,838 shares as of December 31,
1997 and December 31, 1996, respectively 11,000 11,000
Additional paid-in capital 131,809,000 131,681,000
Retained earnings 19,392,000 14,897,000
------------ ------------
Total shareholders' equity 151,212,000 146,589,000
------------ ------------
$207,072,000 $214,026,000
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
28
<PAGE> 29
INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES
Consolidated Statements of Earnings
For the years ended December 31
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
Net sales:
<S> <C> <C> <C>
Vehicle sales $ 175,733,000 $ 201,104,000 $ 188,222,000
Fee income 83,592,000 80,789,000 69,774,000
------------- ------------- -------------
259,325,000 281,893,000 257,996,000
Costs and expenses (Note 6):
Cost of sales 199,983,000 223,144,000 201,191,000
Direct operating expenses 44,599,000 46,015,000 42,308,000
Amortization of acquisition costs 3,790,000 3,778,000 3,386,000
Special charges (Note 9) 750,000 1,395,000 4,226,000
------------- ------------- -------------
Earnings from operations 10,203,000 7,561,000 6,885,000
Other (income) expense:
Interest expense 2,700,000 3,009,000 2,345,000
Interest income (821,000) (890,000) (913,000)
------------- ------------- -------------
Earnings before income taxes 8,324,000 5,442,000 5,453,000
Income taxes (Note 4) 3,829,000 2,340,000 2,317,000
------------- ------------- -------------
Net earnings $ 4,495,000 $ 3,102,000 $ 3,136,000
============= ============= =============
Earnings per share (Note 10)
Basic $ .40 $ .28 $ .28
============= ============= =============
Diluted $ .40 $ .27 $ .27
============= ============= =============
Weighted average shares outstanding (Note 10):
Basic 11,294,000 11,279,000 11,265,000
============= ============= =============
Diluted 11,337,000 11,333,000 11,421,000
============= ============= =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
29
<PAGE> 30
INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAl TOTAL
----------------------------------
NUMBER PAID-IN RETAINED SHAREHOLDERS'
OF SHARES AMOUNT CAPITAL EARNINGS EQUITY
----------------- ------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 11,250,905 $ 11,000 $131,227,000 $ 8,659,000 $139,897,000
Issuance of common stock in
connection with exercise of
common stock options 10,800 -- 143,000 -- 143,000
Issuance of common stock in
connection with the employee --
stock purchase plan 8,436 -- 205,000 205,000
Net earnings -- -- -- 3,136,000 3,136,000
----------------- ------------- ---------------- --------------- ----------------
Balance at December 31, 1995 11,270,141 11,000 131,575,000 11,795,000 143,381,000
Issuance of common stock in
connection with exercise of
common stock options 2,000 -- 13,000 -- 13,000
Issuance of common stock in
connection with the employee --
stock purchase plan 10,697 -- 93,000 93,000
Net earnings -- -- -- 3,102,000 3,102,000
----------------- ------------- ---------------- --------------- ----------------
Balance at December 31, 1996 11,282,838 11,000 131,681,000 14,897,000 146,589,000
Issuance of common stock in
connection with exercise of
common stock options 8,600 -- 49,000 -- 49,000
Issuance of common stock in
connection with the employee --
stock purchase plan 8,123 -- 79,000 77,000
Net earnings -- -- -- 4,495,000 4,495,000
----------------- ------------- ---------------- --------------- ----------------
Balance at December 31, 1997 11,299,561 $ 11,000 $131,809,000 $19,392,000 $151,212,000
================= ============= ================ =============== ================
</TABLE>
See accompanying notes to Consolidated Financial Statements
-30-
<PAGE> 31
INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31
<TABLE>
<CAPTION>
1997 1996 1995
-------------- --------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 4,495,000 $ 3,102,000 $ 3,136,000
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 8,671,000 8,579,000 6,605,000
Loss on disposal of fixed assets
(151,000) - -
Noncash special charges 465,000 2,512,000
-
Changes in assets and liabilities
(net of effects of acquired companies):
(Increase) decrease in:
Accounts receivable, net 5,379,000 (3,998,000) (4,395,000)
Inventories (1,600,000) (667,000) (2,781,000)
Other currents assets 1,762,000 (2,040,000)
(39,000)
Other assets 932,000 287,000
(42,000)
Increase (decrease) in:
Accounts payable (1,695,000) (2,591,000) 1,267,000
Accrued liabilities (3,792,000) 403,000 2,894,000
Income taxes 1,143,000 (441,000) 131,000
------------ ------------- -------------
Total adjustments 10,649,000 1,998,000 4,151,000
----------- ------------ ------------
Net cash provided by operating activities 15,144,000 5,100,000 7,287,000
---------- ------------ ------------
</TABLE>
-31-
<PAGE> 32
INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
For the years ended December 31
<TABLE>
<CAPTION>
1997 1996 1995
-------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from investing activities:
Proceeds from disposition of property and equipment 696,000 698,000 1,240,000
Capital expenditures (4,608,000) (5,910,000) (11,000,000)
Payments made in connection with acquisitions
(net of cash acquired) (1,969,000) (19,823,000)
(311,000)
Sale of short-term investments - - 7,849,000
-------------- --------------- ---------------
Net cash used in investing activities (4,223,000) (7,181,000) (21,734,000)
Cash flows from financing activities:
Proceeds from issuance of common stock 128,000 107,000 367,000
Principal payments of long-term debt (7,303,000) (3,909,000) (856,000)
Proceeds from line of credit - 4,589,000 -
Proceeds from issuance of Senior Notes - - 19,589,000
-------------- --------------- ---------------
Net cash provided by (used in) financing
activities (7,175,000) 787,000 19,100,000
-------------- --------------- ---------------
Net increase (decrease) in cash and cash
equivalents 3,746,000 (1,294,000) 4,653,000
Cash and cash equivalents at beginning of year 5,888,000 7,182,000 2,529,000
-------------- --------------- ---------------
Cash and cash equivalents at end of year $ 9,634,000 $ 5,888,000 $ 7,182,000
============== =============== ===============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest 4,411,000 2,793,000 1,511,000
Income taxes $2,364,000 $3,570,000 $4,059,000
</TABLE>
See accompanying notes to consolidated financial statements.
-32-
<PAGE> 33
INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
BACKGROUND
Insurance Auto Auctions, Inc. (the Company) provides insurance companies
and other vehicle suppliers cost-effective salvage processing solutions
including selling total loss and recovered theft vehicles.
PRINCIPLES OF CONSOLIDATION
The accompanying Consolidated Financial Statements include the accounts
of the Company and its wholly owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in
consolidation.
SALES
Sales (including vehicle sales and fee income) are recognized upon
payment by the buyer for the auctioned vehicle.
CASH EQUIVALENTS
Cash equivalents consist principally of commercial paper. For purposes
of the consolidated statements of cash flows, the Company considers all
highly liquid investments with original maturities of three months or
less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or estimated realizable
value. Cost includes the cost of acquiring ownership of total loss and
recovered theft vehicles, charges for towing and, less frequently,
reconditioning costs. The costs of inventories are charged to operations
based upon the specific-identification method.
The Company has agreements to purchase total loss and recovered theft
vehicles from insurance companies for a percentage of the vehicle's
actual cash value. The Company has acquired the majority of its
inventory pursuant to these contracts.
ASSET IMPAIRMENT
As part of an ongoing review of the valuation and amortization of
intangible assets, management assesses the carrying value of the
Company's intangible assets if facts and circumstances suggest that such
assets may be impaired. If this review indicates that the intangible
assets will not be recoverable, as determined by an undiscounted cash
flow analysis over the remaining amortization period, the carrying value
of the Company's intangible assets would be reduced to their estimated
fair market value.
-33-
<PAGE> 34
INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
USE OF ESTIMATES
The Company has made a number of estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent
assets and liabilities to prepare these Consolidated Financial
Statements in conformity with generally accepted accounting principles.
Actual results could differ from these estimates.
DEPRECIATION AND AMORTIZATION
Depreciation of property and equipment is computed using the
straight-line method over the estimated useful lives of the related
assets ranging from three to ten years. Leasehold improvements are
amortized on a straight-line basis over their estimated economic useful
life or the life of the lease, whichever is less.
Intangible assets, principally goodwill, are amortized over periods of
15 to 40 years on a straight-line basis. Accumulated amortization at
December 31, 1997 and 1996 was $15,075,000 and $10,902,000,
respectively.
INCOME TAXES
The Company accounts for income taxes under the asset and liability
method, whereby deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases, as well as operating loss and tax credit
carry forwards.
CREDIT RISK
The Company sells its vehicles principally to customers throughout the
United States under the purchase-agreement method, the
fixed-fee-consignment method and the percentage-of-sale-consignment
method. Actual sales of vehicles are sold generally for cash; therefore,
very little credit risk is incurred from the selling of vehicles.
Receivables arising from advance charges made on behalf of the vehicle
supplier, most of which are insurance companies, are generally satisfied
from the net proceeds payable to the insurance company. A small
percentage of vehicles sold do not have sufficient net proceeds to
satisfy the related receivables, and in these cases, the receivable is
due from the insurance company. Management performs regular evaluations
concerning the ability of its customers and suppliers to satisfy their
obligations and records a provision for doubtful accounts based upon
these evaluations. The Company's credit losses for the periods presented
are insignificant and have not exceeded management's estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments approximate fair value as
of December 31, 1997 and 1996. The carrying amounts related to cash and
cash equivalents, accounts receivable, other current assets and accounts
payable approximate fair value due to the relatively short maturity of
such instruments. The fair value of long-term debt is estimated by
discounting the future cash flows of each instrument at rates currently
available to the Company for similar debt instruments of comparable
maturities by the Company's bankers.
STOCK COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (Statement No. 123), issued in October 1995
and effective for fiscal years beginning after December 15, 1995,
permits, but does not require, a fair-value based method of accounting
for employee stock options or
-34-
<PAGE> 35
INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
similar equity instruments. Statement No. 123 allows an entity to elect
to continue to measure compensation cost under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APBO No. 25), but requires pro forma disclosures of net earnings and
net earnings per share as if the fair-value based method of accounting
had been applied. Effective January 1, 1996, the Company elected to
continue to measure compensation cost under APBO No. 25 and comply with
the pro forma disclosure requirements. Accordingly, the adoption of
Statement No. 123 had no material impact on the Company's consolidated
financial position or results of operations.
EARNINGS PER SHARE
Statement of Financial Accounting Standards ("S.F.A.S.") No. 128,
"Earnings per Share", issued in March 1997 and effective for fiscal
years ending after December 15, 1997, requires the presentation of
"Basic" earnings per share, which represents net earnings divided by the
weighted average number of shares outstanding. Presentation of "Diluted"
earnings per share, which reflects the dilutive effects of potentially
issuable common stock equivalents as determined by the treasury stock
method, is also required. The Diluted presentation is similar to the
historical presentation of fully diluted earnings per share. The Company
has adopted Statement No. 128, effective January 1, 1997. Adoption of
the Statement had no material impact on the Company's consolidated
financial position or results of operations.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 accounts to conform
with the 1997 presentation.
-35-
<PAGE> 36
INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
--------------- ----------------
<S> <C> <C>
Senior notes payable, net of related loan fees, unsecured, interest
payable in semiannual installments commencing August 15, 1995
through maturity at February 15, 2002, at 8.60%, principal due at
maturity $ 19,715,000 $ 19,735,000
Notes payable issued in connection with the acquisition of a subsidiary,
secured by capital stock purchased in the acquisition, interest
payable quarterly at 7.5%, principal payable in three
annual installments beginning June 30, 1996 1,833,000 3,632,000
Notes payable issued in connection with a consulting agreement related
to the acquisition of a subsidiary, unsecured, payable in monthly
installments of $16,666, including interest at 7.5%, with final
payment due June 30, 2000 460,000 618,000
Notes payable issued in connection with the acquisition of a certain
subsidiary, unsecured, payable in monthly installments, including
interest at 8%, with final payment due April 1, 2005 272,000 299,000
Notes payable issued in connection with the acquisition of a certain
subsidiary. -- 500,000
Advances under unsecured $15,000,000 long-term line of credit, net of
related loan fees. No borrowings were outstanding at December 31,
1997. The outstanding borrowings at December 31, 1996 were
$4,500,000 and bear interest at the bank's prime rate or LIBOR, as
defined -- 4,402,000
Capital lease obligations -- 55,000
--------------- ----------------
22,280,000 29,241,000
Less current installments 2,034,000 2,571,000
--------------- ----------------
$ 20,246,000 $ 26,670,000
=============== ================
</TABLE>
-36-
<PAGE> 37
INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Total principal repayments required for each of the next five years
under all long-term debt agreements are summarized as follows:
<TABLE>
<S> <C>
1998 $ 2,034,000
1999
216,000
2000
138,000
2001
40,000
2002 19,754,000
Thereafter
98,000
---------------
$ 22,280,000
===============
</TABLE>
The Senior Notes and line of credit require the Company to comply with
certain covenants such as maintenance of net worth and limitations on
debt. As of December 31, 1997, the Company was in compliance with these
covenants.
In 1997, the Company refinanced its line of credit agreement with a
similar facility with virtually identical terms with a different bank.
The $15,000,000 facility is unsecured, bears interest at the bank's
prime rate or LIBOR, as defined, and expires on April 1, 2000.
(3) EMPLOYEE STOCK PURCHASE PLAN
During the years ended December 31, 1997, 1996 and 1995, the Company
issued 8,123, 10,697 and 8,436 shares of common stock for aggregate
consideration of $79,000, $93,000 and $205,000, respectively, in
connection with the employee stock purchase plan.
(4) INCOME TAXES
Income taxes are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- ---------------- ----------------
<S> <C> <C> <C>
Current:
Federal $ 2,853,000 $ 794,000 $ 1,627,000
State 329,000 187,000 472,000
--------------- ---------------- ----------------
3,182,000 981,000 2,099,000
--------------- ---------------- ----------------
Deferred:
Federal 427,000 1,788,000 163,000
State 220,000 (429,000) 55,000
--------------- ---------------- ----------------
647,000 1,359,000 218,000
--------------- ---------------- ----------------
$ 3,829,000 $ 2,340,000 $ 2,317,000
=============== ================ ================
</TABLE>
Deferred income taxes are comprised of the effects of the components
listed below. A valuation allowance has been recorded to reduce deferred
tax assets for which the Company believes a tax benefit will not be
realized.
-37-
<PAGE> 38
INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
<S> <C> <C>
Deferred tax assets attributable to:
Inventories $ 385,000 $ 457,000
State income taxes 61,000 539,000
Depreciation 1,609,000 887,000
Special charges 248,000 227,000
Other 215,000 29,000
State Net Operating Loss 690,000 530,000
Valuation Allowance (605,000) (447,000)
----------------- -----------------
Net deferred tax assets 2,603,000 2,222,000
Deferred tax liabilities attributable to:
Intangible assets (5,235,000) (4,208,000)
----------------- -----------------
Net deferred tax liabilities $ (2,632,000) $ (1,986,000)
================= =================
</TABLE>
The actual income tax expense differs from the "expected" tax expense
computed by applying the Federal corporate tax rate to earnings before
income taxes as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
"Expected" income taxes $ 2,830,000 $ 1,850,000 $ 1,854,000
State income taxes, net of Federal 254,000 288,000 324,000
benefit
Amortization of intangible assets 353,000 406,000 383,000
Other 392,000 (204,000) (244,000)
--------------- --------------- ---------------
$ 3,829,000 $ 2,340,000 $ 2,317,000
=============== =============== ===============
</TABLE>
(5) EMPLOYEE BENEFIT PLANS
The Company adopted the Insurance Auto Auctions, Inc. 1991 Stock Option
Plan (the 1991 Plan), as amended, presently covering 1,350,000 shares of
the Company's common stock. The 1991 Plan provides for the grant of
incentive stock options to key employees and nonqualified stock options
and stock appreciation rights to key employees, directors, consultants
and independent contractors. The 1991 Plan expires September 26, 2001.
In general, new nonemployee directors will automatically receive grants
of nonqualified options to purchase 10,000 shares and subsequent grants
to purchase 2,000 shares at specified intervals.
During 1995, the Company adopted the Insurance Auto Auctions, Inc.
Supplemental Stock Option Plan (the 1995 Plan) covering 200,000 shares
of the Company's common stock. The 1995 Plan provides for the grant of
nonqualified stock options to employees, other than executive officers,
and consultants and other independent advisors who provide services to
the Company. The 1995 Plan will expire on October 1, 2005.
-38-
<PAGE> 39
INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Under both plans, as of December 31, 1997, options to purchase an
aggregate of 1,086,000 shares were outstanding at a weighted average
exercise price of $21.60 per share and 370,000 shares remained available
for future grant.
Activity under the plans for the years ended December 31, 1997 and 1996
is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- --------------- -------------
<S> <C> <C> <C>
Balance at beginning of year 1,082,000 1,061,000 967,000
Options granted 43,000 270,000 216,000
Options canceled (30,000) (247,000) (111,000)
Options exercised (9,000) (2,000) (11,000)
-------------- --------------- -------------
Balance at end of year 1,086,000 1,082,000 1,061,000
============== =============== =============
Options exercisable at end of year 770,000 588,000 561,000
============== =============== =============
Price range of options outstanding at end of year 7.00-37.50 7.00-37.50 7.00-38.50
============== =============== =============
Price range of options granted during the year 8.25-9.44 9.25-12.63 7.00-32.25
============== =============== =============
</TABLE>
The Company adopted the Insurance Auto Auctions, Inc., Employee Stock
Purchase Plan (the Stock Purchase Plan) effective July 1, 1993. The
Stock Purchase Plan provides for the purchase of up to 75,000 shares of
common stock of the Company by employees pursuant to the terms of the
Plan, as defined. During the years ended December 31, 1997 and 1996, the
Company issued 8,123 and 10,697 shares, respectively, of its common
stock under the Plan.
The Company has a 401(k) defined contribution plan covering all
full-time employees. Plan participants can elect to contribute up to 20%
of their gross payroll. Company contributions are determined at the
discretion of the Board of Directors and during the years ended December
31, 1997, 1996 and 1995, were matched 100% up to 4% of eligible
earnings. Company contributions to the plan during the years ended
December 31, 1997, 1996 and 1995 were approximately $381,000, $482,000
and $403,000, respectively.
-39-
<PAGE> 40
INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company applies APB Opinion No. 25 in accounting for its plans, and
accordingly, no compensation cost has been recognized for any stock
options in the accompanying Consolidated Financial Statements. Had the
Company determined compensation expense based upon the fair value at the
date of grant, as determined under Statement No. 123, the Company's net
earnings and net earnings per share would have been reduced to the pro
forma amounts as summarized below:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- ---------------- --------------
<S> <C> <C> <C> <C>
Earnings $ 4,170,000 $ 2,829,000 $ 3,085,000 $
=============== ================ ==============
Earnings per share
Basic $ .37 $ .25 $ .27
=============== ================ ==============
Diluted $ .37 $ .25 $ .27
=============== ================ ==============
</TABLE>
The per share weighted average fair value of stock options granted
during 1997, 1996 and 1995 was $4.60, $5.25 and $3.80, respectively,
based upon a grant date valuation using the Black-Scholes option pricing
model with the following weighted average assumptions in 1997, 1996 and
1995 - expected dividend yield of 0.0%, expected volatility of .64%,
.61% and .61%, respectively; risk-free interest rate of 5.7%, 6.2% and
6.2%, respectively; and an average expected option life of 4.5, 4 and 4
years, respectively.
The pro forma net earnings and earnings per share reflect only those
options granted since January 1, 1995. Therefore, the full impact of
calculating compensation cost for stock options under Statement No. 123
is not reflected in the pro forma net earnings and earnings per share
presented above because compensation cost is generally recorded over the
options' vesting period, generally four years, and compensation cost for
options granted prior to January 1, 1995 is not considered.
(6) RELATED PARTIES TRANSACTIONS
Effective December 1, 1993, the Company entered into a national sales
agreement with Allstate Insurance Company (Allstate) (a shareholder of
the Company). The agreement contains automatic annual renewal provisions
through the December 31, 1998 expiration date of the agreement. Local
Allstate management is ultimately responsible for deciding who will be
the provider of automotive salvage services for their geographic area of
responsibility. The agreement provides specific guidelines as to the
general terms and structure to which any local agreement must conform.
In its normal course of business dealings with Allstate, the Company
purchases vehicles from Allstate and advances funds for intermediary
towing and storage fees (advanced charges) on behalf of Allstate.
Additionally, depending on the type of sales agreement in effect at a
Company location, Allstate may owe the Company for various fees. Upon
settlement, the advanced charges and the related amounts owed to
Allstate for the purchase of the vehicle and the amount owed by Allstate
to the Company for various fees are netted. During the years ended
December 31, 1997 and 1996, the Company recorded fee income of
$7,000,000 and $6,000,000, respectively, related to the consignment sale
of Allstate-insured vehicles and recorded sales of $34,700,000 and
$66,000,000, respectively, and cost of sales
-40-
<PAGE> 41
INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
of $32,800,000 and $63,900,000, respectively, related to the purchase of
Allstate-insured vehicles under the purchase-agreement method.
During 1997, 1996 and 1995, the Company paid fees aggregating
$1,753,000, $1,523,000 and $1,474,000, respectively, to certain towing
companies whose owners are either officers and/or directors/shareholders
of the Company.
(7) COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain equipment under operating
leases with related and nonrelated parties, which expire through August
2007. Rental expense for the years ended December 31, 1997, 1996 and
1995 aggregated $10,035,000, $8,681,000 and $8,944,000 (of which
$966,000, $884,000 and $1,389,000 pertained to leases with related
parties in 1997, 1996 and 1995, respectively), respectively.
Minimum annual rental commitments for the next five years under
noncancelable leases at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
UNRELATED RELATED
PARTY PARTY
---------------- ---------------
<S> <C> <C>
Year ending December 31:
1998 $ 9,474,000 $ 973,000
1999 7,841,000 973,000
2000 7,439,000 973,000
2001 6,285,000 973,000
2002 5,112,000 664,000
Thereafter 11,191,000 --
---------------- ---------------
$47,342,000 $ 4,556,000
================ ===============
</TABLE>
In addition to the Allstate agreement, the Company has purchase
agreements with certain insurance company suppliers, which expire at
various intervals over the next two years. The Company's largest
supplier accounted for 19% of the Company's supply of vehicles sold in
both 1997 and 1996 and 21% in 1995. The second largest supplier
accounted for 17%, 20% and 21% of the Company's supply of vehicles sold
in 1997, 1996 and 1995, respectively. A third supplier accounted for 10%
of the Company's supply of vehicles sold in 1997.
The Company has compensation agreements with certain officers and other
key employees.
The Company is subject to certain other miscellaneous legal claims,
which have arisen during the ordinary course of its business. None of
these claims are expected to have material adverse effect on the
Company's financial condition or operating results.
(8) ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATIONS
In connection with the acquisition of the capital stock of Underwriters
Salvage Corporation (USC), the Company assumed the obligation for
certain health care and death benefits for retired employees of USC. In
accordance with the provisions of Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions," costs related to the benefits are accrued over an
employee's service life. The assumed discount rate used to determine the
Accumulated Postretirement Benefit Obligation (APBO) as of December 31,
1997 and 1996 was 7%.
-41-
<PAGE> 42
INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Included in the footnote disclosure is the Accumulated Postretirement
Benefit Obligation (APBO) for the plan. The APBO is a measure of the
plan's liability, equivalent to the Projected Benefit Obligation used in
pension accounting. The APBO is a factor in the expense calculation and
is included in the footnote disclosure. For retirees, it is the present
value of all benefits expected to be paid from the plan.
Reconciliation of funded status as of December 31,
<TABLE>
<CAPTION>
1997 1996
--------------- ----------------
<S> <C> <C>
Medical $ (972,000) $ (1,010,000)
Life Insurance (385,000) (400,000)
--------------- ----------------
Total APBO (1,357,000) (1,410,000)
Plan assets -- --
--------------- ----------------
Funded status (1,357,000) (1,410,000)
Unrecognized net loss from past experience (2,474,000) (2,763,000)
--------------- ----------------
Accrued postretirement benefit cost $ (3,831,000) $ (4,173,000)
=============== ================
Reconciliation of accumulated postretirement benefit cost:
Accrued benefit cost, $ (4,173,000) $ (4,354,000)
Income (expense) 162,000 (9,000)
Contributions/premium paid 180,000 190,000
--------------- ----------------
Accumulated postretirement benefit cost, December 31, $ (3,831,000) $ (4,173,000)
=============== ================
</TABLE>
Effective January 20, 1994, the date of acquisition, the Company
discontinued future participation for active employees.
(9) SPECIAL CHARGES
During the second quarter of 1997, the Company settled a securities
class action lawsuit that had been pending against the Company and
certain of its present and former officers and directors, in the United
States District Court for the Central District of California. The
litigation was settled for $3.75 million, the substantial portion of
which was paid by the Company's directors' and officers' liability
insurance company. The difference of $750,000 was recognized as a
special charge to earnings in the second quarter of 1997. In February
1998, the settlement was approved by the court.
During 1996, the Company recorded special charges aggregating $1,395,000
as a result of further repositioning to achieve its strategic plans. In
implementing these strategic plans, the Company decided to establish its
corporate headquarters in Illinois resulting in severance costs of
$210,000 related to corporate employees not relocating to the Illinois
corporate headquarters. Additionally, the Company incurred costs
amounting to $670,000 to terminate an employment agreement with the
Company's former Chairman of the Board and Chief Executive Officer.
After evaluating past contracts entered into, the Company incurred a
charge of $880,000 for agreements determined to no longer have value to
the current
-42-
<PAGE> 43
INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
corporate strategy. Additionally, the Company recorded an offsetting
gain of $365,000 related to the negotiation of a buyout of a long-term
lease.
During 1995, the Company recorded special charges aggregating
$4,226,000. The Company responded to changes in its industry and
formulated its plans to reposition itself to achieve its strategic
growth objectives. As a result of this repositioning, the Company
determined that certain of its computer systems, software and related
assets should be written down resulting in a charge of approximately
$2.5 million, which is included in special charges. The Company also
decided to not move its North Hollywood, California corporate
administrative staff to a facility it had leased in Woodland Hills,
California, resulting in a $1.1 million special charge. Additionally,
the Company recorded charges related to the repositioning aggregating
$600,000, all of which are included in special charges.
(10) EARNINGS PER SHARE
Reconciliations of the numerators and denominators of the basic and diluted
earnings per share computations for the years ended December 31, 1997, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
1997
---------------------------------------------------------
Per Share
Earnings Shares Amount
------------- -------------- -------------
<S> <C> <C> <C>
Basic Earnings per Share
Net earnings $ 4,495,000 11,294,000 $ 0.40
=============
Effect of Dilutive Securities -
Stock Options -- 43,000
------------- --------------
Diluted Earnings per Share $ 4,495,000 11,337,000 $ $0.40
============= ============== =============
<CAPTION>
1996
---------------------------------------------------------
Per Share
Earnings Shares Amount
------------- -------------- -------------
Basic Earnings per Share
Net earnings $ 3,102,000 11,279,000 $ 0.28
=============
Effect of Dilutive Securities -
Stock Options -- 54,000
------------- --------------
Diluted Earnings per Share $ 3,102,000 11,333,000 $ $0.27
============= ============== =============
<CAPTION>
1995
---------------------------------------------------------
Per Share
Earnings Shares Amount
------------- -------------- -------------
Basic Earnings per Share
Net earnings $ 3,136,000 11,265,000 $ 0.28
=============
Effect of Dilutive Securities
Stock Options -- 156,000
------------- --------------
Diluted Earnings per Share $ 3,136,000 11,421,000 $ $0.27
============= ============== =============
</TABLE>
-43-
<PAGE> 44
INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized unaudited financial data for 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C>
1997:
Net sales $ 67,885,000 $ 65,978,000 $ 61,403,000 $ 64,059,000
Gross profit 13,832,000 16,295,000 14,289,000 14,926,000
Earnings from
operations 1,508,000 3,095,000 2,457,000 3,143,000
Net earnings 530,000 1,520,000 971,000 1,474,000
Diluted earnings per
share(1) $ .05 $ .13 $ .09 $ .13
================ =============== ================ =================
1996:
Net sales $ 72,816,000 $ 76,042,000 $ 68,680,000 $ 64,355,000
Gross profit 14,867,000 16,364,000 13,739,000 13,779,000
Earnings from
operations 1,985,000 3,191,000 1,798,000 587,000
Net earnings 759,000 1,521,000 751,000 71,000
Diluted earnings per
share(1) $ .07 $ .13 $ .07 $ .01
================ =============== ================ =================
</TABLE>
(1) Basic earnings per share is not presented separately as it is the
same as diluted earnings per share for each quarter of 1996 and 1997.
-44-
<PAGE> 45
INSURANCE AUTO AUCTIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Page
- ----------- ----
<S> <C>
3.1 Articles of Incorporation
3.2 By-Laws
10.149 Form of Change of Control
10.151 Amendment to Revolving Credit
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent Auditors.
24.1 Power of Attorney
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
FILE NUMBER 5953-635-4 EXHIBIT 3.1
STATE OF ILLINOIS
OFFICE OF
THE SECRETARY OF STATE
WHEREAS, ARTICLES OF INCORPORATION OF INSURANCE AUTO AUCTIONS (ILLINOIS), INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS HAVE BEEN FILED IN THE
OFFICE OF THE SECRETARY OF STATE AS PROVIDED BY THE BUSINESS CORPORATION ACT OF
ILLINOIS, IN FORCE JULY 1, A.D. 1984.
NOW THEREFORE, I, GEORGE H. RYAN, SECRETARY OF STATE OF THE STATE OF ILLINOIS,
BY VIRTUE OF THE POWERS VESTED IN ME BY LAW, DO HEREBY ISSUE THIS CERTIFICATE
AND ATTACH HERETO A COPY OF THE APPLICATION OF THE AFORESAID CORPORATION.
IN TESTIMONY WHEREOF, I HERETO SET MY HAND AND CAUSE TO BE AFFIXED THE GREAT
SEAL OF THE STATE OF ILLINOIS, AT THE CITY OF SPRINGFIELD, THIS 7TH DAY OF
AUGUST A.D. 1997 AND OF THE INDEPENDENCE OF THE UNITED STATES THE TWO HUNDRED
AND 22ND.
[SEAL OF THE STATE OF ILLINOIS]
C-212.2
George H. Ryan
Secretary of State
RETURN TO BOX 408
ATTN: JM
------------
<PAGE> 2
<TABLE>
<CAPTION>
<S><C>
Form BCA-2.10 ARTICLES OF INCORPORATION
- ------------------------------------------------------------------------------------------
(Rev. Jan. 1995) THIS SPACE FOR USE BY SECRETARY OF STATE SUBMIT IN DUPLICATE!
GEORGE H. RYAN -----------------------
SECRETARY OF STATE F I L E D THIS SPACE FOR USE BY
Department of Business Services Secretary of State
Springfield, IL 62756 AUG 7 1997
- ---------------------- Date 8-7-97
Payment must be made by GEORGE H. RYAN Franchise Tax $ 25.00
certified check, cashier's SECRETARY OF STATE Filing Fee $ 75.00
check, Illinois attorney's -------
check, Illinois C.P.A.'s Approved: ??? $100.00
check or money order, payable
to "Secretary of State."
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1. CORPORATE NAME: Insurance Auto Auctions (Illinois), Inc.
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(The corporate name must contain the word "corporation", "company," "incorporated,"
"limited" or an abbreviation thereof.)
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2. Initial Registered Agent: Gaspare Ruggirello
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First Name Middle Initial Last Name
Initial Registered Office: 850 East Algonquin Road
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Number Street Suite #
Schaumburg IL 60173 Cook
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City Zip Code County
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3. Purpose or purposes for which the corporation is organized:
(If not sufficient space to cover this point, add one or more sheets of this size.)
The transaction of any or all lawful businesses for which corporations
may be incorporated under the Illinois Business Corporation Act.
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4. Paragraph 1: Authorized Shares, Issued Shares and Consideration Received:
Par Value Number of Shares Number of Shares Consideration to be
Class per Share Authorized Proposed to be Issued Received Therefor
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Common $ NPV 20,000,000 1,000 $1
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Preferred NPV 5,000,000 0 0
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TOTAL: $1
Paragraph 2: The preferences, qualifications, limitations, restrictions and special or
relative rights in respect of the shares of each class are:
(If not sufficient space to cover this point, add one or more sheets of this size.)
See attachment.
(over)
RETURN TO BOX 408 EXPEDITED
ATTN: JM AUG 07 1997
------------ SECRETARY OF STATE
</TABLE>
<PAGE> 3
ARTICLE 4, PARAGRAPH 2:
a. NUMBER OF AUTHORIZED SHARES.
The Corporation shall have authority to issue a total of twenty-five
million (25,000,000) shares of capital stock, divided into classes as follows:
(1) Twenty million (20,000,000) shares of capital stock shall
constitute a separate and single class designated "Common Shares," which shall
have no par value and $.001 stated value.
(2) Five million (5,000,000) shares of capital stock shall constitute
a separate and single class designated "Preferred Shares," which shall have no
par value and $.001 stated value and may be issued in series, with all Preferred
Shares of the same series having identical rights, preferences and limitations.
b. COMMON SHARES.
(1) Dividend Rights. Subject to the rights of any class of shares
(or series thereof) of the Corporation ranking, as to dividends, senior to
Common Shares, the holders of Common Shares shall be entitled to receive such
dividends, if any, as may be declared by the Board of Directors of the
Corporation from time to time and paid on Common Shares out of any assets of the
Corporation at the time legally available for the payment of dividends.
(2) Liquidation. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the holders of the
Common Shares shall be entitled to share ratably in the assets of the
Corporation remaining after all distributions or payments shall have been made
to the holders of any class of shares (or series thereof) of the Corporation
ranking senior, as to liquidation rights, to Common Shares.
The merger or share exchange of the Corporation with any other
corporation, or a sale, lease or conveyance of all or substantially all of its
assets, shall not be regarded as a liquidation, dissolution or winding up of the
Corporation within the meaning of this section.
(3) Voting. Subject to the rights of any outstanding Preferred
Shares or as may be required by law, all voting power shall rest exclusively in
the holders of Common Shares. Each Common Share shall be entitled to one vote on
each matter submitted to a vote of the shareholders of the Corporation.
c. PREFERRED SHARES.
Preferred Shares may be issued from time to time in one or more
series, in such amounts and for such consideration as the Board of Directors may
determine and with such
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preferences, limitations and relative rights as shall be determined and stated
by the Board of Directors. The Board of Directors is hereby granted further
authority to determine such preferences, limitations and relative rights for
each such series of Preferred Shares by resolution prior to the issuance of
each such series. Without limiting the generality of the authority granted to
the Board of Directors herein, the Board of Directors shall have the power,
right and authority to determine the following preferences, limitations and
relative rights:
(1) Designation. The designation of each series, which designation
shall be by distinguishing letter, number, title or combination thereof.
(2) Number. The number of shares of any series to be issued.
(3) Dividend Source, Rate and Dates. The source, rate and dates of
any dividends payable with respect to shares of any series; provided, however,
that no dividends shall be payable upon the Preferred Shares to the extent that
(A) the Corporation would not be able to pay its debts as they become due in the
usual course of business; or (B) the Corporation's total assets would be less
than the sum of its total liabilities plus (unless otherwise provided herein)
the amount that would be needed, if the Corporation were to be dissolved at the
time of the distribution, to satisfy the preferential rights upon dissolution of
the shareholders whose preferential rights are superior to those receiving the
distribution.
(4) Dividend Accumulations. Whether any dividends which may be
payable with respect to shares of any series shall be cumulative; and, if they
shall be cumulative, then the dates from which such dividends shall start to
cumulate.
(5) Dividend Preferences. The preference or preferences, if any, to
be accorded dividends payable with respect to shares of any series.
(6) Redemption. The redemption rights and prices, if any, with
respect to shares of any series.
(7) Sinking Fund. The terms and amount of any sinking fund provided
for the redemption of shares of any series.
(8) Rights of Purchase. The rights, if any, of the Corporation to
purchase for retirement, other than by way of redemption, shares of any series,
and the terms and conditions of any such purchase rights.
(9) Conversion. Whether or not the shares of any series shall be
convertible into Common Shares or into shares of any other series or number of
series or into any other security; and, if so, the conversion price or prices,
any adjustments thereof and/or any other terms and conditions upon which such
conversion may be effected.
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(10) Liquidation. The preference or preferences, if any, with respect
to shares of any series entitled to receive the net assets of the Corporation
upon liquidation, dissolution or winding up of the Corporation
(11) Voting. The voting rights, if any, to which the holders of any
series of Preferred Shares may be entitled.
d. DISTRIBUTIONS TO SHAREHOLDERS.
The Board of Directors may authorize, and the Corporation may make,
distributions to its shareholders if, after giving the distribution effect, (1)
the Corporation would be able to pay its debts as they become due in the usual
course of business and (2) the Corporation's total assets would be greater than
its total liabilities, without regard to any amount that would be needed, if the
Corporation were to be dissolved at the time of the distribution, to satisfy the
preferential rights upon dissolution of shareholders whose preferential rights
are superior to those receiving the distribution.
ARTICLE 7:
A. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS.
The Corporation shall indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation), by reason of the
fact that he or she is or was a director or officer of the Corporation, or who
is or was serving at the request of the Corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, if such person acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The Corporation may indemnify any person who was or is a party, or is threatened
to be made a party, to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Corporation), by reason of the fact that he
or she is or was an employee or agent of the Corporation, or who is or was
serving at the request of the Corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, if such person acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order, settlement
or conviction, or upon a plea of nolo contendere or its equivalent, shall not,
of itself,
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create a presumption that the person did not act in good faith and in a manner
which he or she reasonably believed to be in or not opposed to the best
interests of the Corporation or, with respect to any criminal action or
proceeding, that the person had reasonable cause to believe that his or her
conduct was unlawful.
B. LIMITATION OF LIABILITY OF DIRECTORS.
The liability of the directors of the Corporation for monetary damages
shall be eliminated to the fullest extent permissible under Illinois law.
C. NO CUMULATIVE VOTING.
In all elections for directors, cumulative voting by the shareholders
is hereby denied under all circumstances.
D. NO INFORMAL ACTION BY SHAREHOLDERS.
Any action which may or must be taken by the shareholders must be
taken at any annual or special meeting of the shareholders and may not be taken
by any consent in writing of the shareholders.
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EXHIBIT 3.2
BY-LAWS
OF
INSURANCE AUTO AUCTIONS (ILLINOIS), INC.
ARTICLE 1
OFFICES; REGISTERED AGENT
Section 1.1 REGISTERED OFFICE AND AGENT. The corporation shall maintain
in the State of Illinois a registered office and a registered agent whose
business office is the registered office.
Section 1.2 PRINCIPAL BUSINESS OFFICE. The corporation shall have its
principal business office at such location within or without the State of
Illinois as the board of directors may from time to time determine.
ARTICLE 2
SHAREHOLDERS
Section 2.1 ANNUAL MEETING. The annual meeting of the shareholders shall
be held for the purpose of electing directors and for the transaction of such
other business as may come before the meeting on the third Wednesday of June
each year, or, if this date in any year shall be a legal holiday, then the
meeting shall be held on the next succeeding business day; provided, however,
that the board of directors may, by resolution adopted before notice of the
meeting is given to the shareholders, fix a different date and/or time for
holding any annual meeting.
Section 2.2 SPECIAL MEETINGS. Special meetings of the shareholders may
be called by the president, by the board of directors or by the holders of not
less than one-fifth of all the outstanding shares of the corporation entitled
to vote on the matter for which the meeting is called.
Section 2.3 PLACE OF MEETING. The board of directors may designate any
place, either within or without the State of Illinois, as the place for any
annual meeting or for any special meeting called by the board of directors, but
if no designation is made, or if a special meeting be otherwise called, the
place of meeting shall be the principal business office of the corporation;
provided, however, that for any meeting of the shareholders for which a waiver
of notice designating a place is signed by all of the shareholders, then that
shall be the place for the holding of such meeting.
Section 2.4 NOTICE OF MEETINGS. Written notice stating the place, date
and hour of the meeting of the shareholders and, in the case of a special
meeting, the purpose or purposes for
<PAGE> 2
which the meeting is called either shall be delivered personally or mailed to
each shareholder of record entitled to vote at the meeting, not less than 10
nor more than 60 days before the date of the meeting, or, in the case of a
meeting called for the purpose of acting upon a merger, consolidation, share
exchange, dissolution or sale, lease or exchange of assets, not less than 20
nor more than 60 days before the meeting, by or at the direction of the
president, the secretary, or other persons calling the meeting. If mailed,
such notice shall be deemed to be given when deposited in the United States
mail addressed to the shareholder at his or her address as it appears on the
records of the corporation, with postage thereon prepaid.
Section 2.5 WAIVER OF NOTICE. A waiver of notice in writing signed by a
shareholder entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to giving notice to such shareholder.
Attendance at any meeting shall constitute waiver of notice thereof unless the
person so attending objects to the holding of the meeting because proper notice
was not given.
Section 2.6 FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of the
shareholders or to receive payment of any dividend or other distribution or
allotment of any rights, or in order to make a determination of shareholders
for any other proper purpose, the board of directors may fix in advance a
record date for any such determination of shareholders, which shall be not more
than 60 days and, for a meeting of shareholders, not less than 10 days, or in
the case of a meeting called for the purpose of acting upon a merger,
consolidation, share exchange, dissolution or sale, lease or exchange of
assets, not less than 20 days, before the date of the event for which the
determination is required. If no record date is fixed as aforesaid, the record
date for the determination of shareholders entitled to notice of or to vote at
a meeting of shareholders shall be the date on which notice of the meeting is
mailed and the record date for the determination of shareholders for any other
purpose shall be the date on which the board of directors adopts resolution(s)
relating thereto. A determination of shareholders entitled to vote at any
meeting of the shareholders shall apply to any adjournment of the meeting.
Section 2.7 VOTING LISTS. The officer or agent having charge of the
share transfer books of the corporation shall make, within 20 days after the
record date for a meeting of shareholders or 10 days before such meeting,
whichever is earlier, a complete list of the shareholders entitled to vote at
such meeting, arranged in alphabetical order, showing the address of and the
number of shares held by each, which list shall be kept on file at the
registered office of the corporation and shall be subject to inspection by any
shareholder, and to copying at the shareholder's expense, at any time during
usual business hours for a period of 10 days prior to each meeting of the
shareholders. Such list shall also be produced and kept open at the time and
place of the meeting and shall be subject to inspection by any shareholder
during the whole time of the meeting. The original share ledger or transfer
books, or a duplicate thereof kept in the State of Illinois, shall be prima
facie evidence as to who are the shareholders entitled to examine such list or
share ledger or transfer books or to vote at any meeting of the shareholders.
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Section 2.8 QUORUM AND VOTE REQUIRED FOR ACTION. The holders of
outstanding shares having a majority of the total votes which all of the
outstanding shares of the corporation would be entitled to cast on a matter at
the meeting, present in person or by proxy, shall constitute a quorum for
consideration of such matter at any meeting of the shareholders; provided that
if a quorum is not present at said meeting, then the holders who are present in
person or by proxy may by majority vote adjourn the meeting from time to time
without further notice. If a quorum is present at any meeting of the
shareholders, the affirmative vote of the majority of the votes entitled to be
cast on a matter by holders of shares who are present in person or by proxy
shall be the act of the shareholders, unless the Illinois Business Corporation
Act of 1983 as amended or the articles of incorporation of the corporation
require a different number of votes. At any adjourned meeting at which a
quorum is present, any business may be transacted which might have been
transacted at the original meeting. Withdrawal of shareholders from any
meeting shall not cause failure of a duly constituted quorum at that meeting.
Section 2.9 PROXIES. Each shareholder entitled to vote at a meeting of
the shareholders may authorize another person or persons to act for him or her
by proxy, but no proxy shall be valid after the expiration of 11 months from
the date thereof unless otherwise provided in the proxy. Such proxy shall be
in writing delivered to the person so appointed and shall be filed with the
secretary of the corporation before or at the time of the meeting.
Section 2.10 VOTING OF SHARES. Each outstanding Common Share, regardless
of class and subject to the terms of any series of Preferred Shares, shall be
entitled to one vote upon each matter submitted to a vote of the shareholders.
Section 2.11 VOTING OF SHARES BY CERTAIN HOLDERS.
(a) Shares registered in the name of another corporation, domestic or
foreign, may be voted by any officer, agent, proxy or other legal
representative authorized to vote such shares under the law of incorporation of
such corporation. The corporation may treat the president or other person
holding the position of chief executive officer of such other corporation as
authorized to vote such shares, together with any other person indicated and
any other holder of an office indicated by the corporate shareholder to the
corporation as a person or an office authorized to vote such shares. Such
persons and offices indicated shall be registered by the corporation on the
transfer books for shares and included in any voting list prepared in
accordance with these by-laws.
(b) Shares registered in the name of a deceased person, a minor ward or a
person under legal disability may be voted by his or her administrator,
executor or court appointed guardian, either in person or by proxy without a
transfer of such shares into the name of such administrator, executor or court
appointed guardian. Shares registered in the name of a trustee may be voted by
him or her, either in person or by proxy.
(c) Shares registered in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer
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thereof into his or her name if authority so to do be contained in an
appropriate order of the court by which such receiver was appointed.
(d) A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
(e) Shares of the corporation belonging to the corporation shall not be
voted, directly or indirectly, at any meeting and shall not be counted in
determining the total number of outstanding shares entitled to vote at any
given time, but shares of the corporation held by the corporation in a
fiduciary capacity may be voted and shall be counted in determining the total
number of outstanding shares entitled to vote at any given time.
Section 2.12 INSPECTORS. At any meeting of the shareholders, the
presiding officer may, or upon the request of any shareholder shall, appoint
one or more persons as inspectors for such meeting. Such inspectors shall
ascertain and report the number of shares represented at the meeting, based
upon their determination of the validity and effect of proxies; count all votes
and report the results; and do such other acts as are proper to conduct the
election and voting with impartiality and fairness to all the shareholders.
Each report of an inspector shall be in writing and signed by him or her or a
majority of them if there is more than one inspector acting at such meeting.
If there is more than one inspector, the report of a majority shall be the
report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.
Section 2.13 VOTING BY BALLOT. Voting on any question shall be by ballot
when so requested by any shareholder or directed by the presiding officer.
ARTICLE 3
DIRECTORS
Section 3.1 GENERAL POWERS. The business and affairs of the corporation
shall be managed by or under the direction of the board of directors.
Section 3.2 NUMBER, TENURE AND QUALIFICATIONS. The number of directors
of the corporation shall range between five and nine. The term of office of
each director shall be until the next annual election of the shareholders or
until his or her successor shall have been elected and qualified. Directors
need not be residents of the State of Illinois or shareholders of the
corporation.
Section 3.3 REGULAR MEETINGS. A regular meeting of the board of
directors shall be held, without other notice than this by-law, immediately
after, and at the same place as, the annual
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meeting of the shareholders. The board of directors may provide, by
resolution, the time and place, either within or without the State of Illinois,
for the holding of additional regular meetings without other notice than such
resolution.
Section 3.4 SPECIAL MEETINGS. Special meetings of the board of directors
may be called by or at the request of the president or any two directors. The
person or persons authorized to call special meetings of the board of directors
may fix any place, either within or without the State of Illinois, as the place
for holding any special meeting of the board of directors called by them.
Section 3.5 NOTICE AND WAIVER. Notice of any special meeting shall be
given at least 2 days prior thereto by written notice to each director at his
or her business address or such other address as he or she may have advised the
secretary of the corporation to use for such purpose. If delivered, such
notice shall be deemed to be given when delivered. If mailed, such notice
shall be deemed to be given two business days after deposit in the United
States mail so addressed, with postage thereon prepaid, and if given by
telegraph such notice shall be deemed to be given the next business day
following the day the telegram is given to the telegraph company. A waiver of
notice in writing signed by the director entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Attendance at any meeting shall constitute waiver of
notice thereof unless the person attends the meeting for the express purpose of
objecting to the transacting of business at the meeting because proper notice
was not given. Neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the board of directors need be specified in
the notice or waiver of notice of such meeting.
Section 3.6 QUORUM. A majority of the number of directors in office at a
given time shall constitute a quorum for the transaction of business at any
meeting of the board of directors, unless a greater number is specified by the
articles of incorporation of the corporation or these by-laws; provided, that
if a quorum is not present, then a majority of the directors present at said
meeting may adjourn the meeting from time to time without further notice than
announcement at the meeting.
Section 3.7 MANNER OF ACTING. The act of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors unless the act of a greater number is required by the articles of
incorporation of the corporation or these by-laws.
Section 3.8 ATTENDANCE BY CONFERENCE TELEPHONE. Members of the board of
directors may participate in and act at any meeting of such board through use
of a conference telephone or other communications equipment by means of which
all persons participating in the meeting can hear each other. Participation in
such meeting by such means shall constitute attendance and presence in person
at the meeting of the person or persons so participating for all purposes
including fulfilling the requirements of sections 3.6 and 3.7.
Section 3.9 VACANCIES. Any vacancy occurring in the board of directors,
and any directorship to be filled by reason of an increase in the number of
directors, may be filled by election
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at an annual meeting or at a special meeting of shareholders called for that
purpose; provided, however, that the board of directors may fill vacancies
arising between meetings of shareholders for any reason, including vacancies
due to an increase in the number of directors.
Section 3.10 INFORMAL ACTION BY DIRECTORS. Any action required to be
taken at a meeting of the board of directors, or any other action which may be
taken at a meeting of the board of directors, may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by all
of the directors. Any consent may be signed in counterparts with the same
force and effect as if all directors had signed the same copy. All signed
copies of any such written consent shall be delivered to the secretary to be
filed in the corporate records. The action taken shall be effective when all
the directors shall have signed the consent unless the consent specifies a
different effective date. Any such consent signed by all of the directors
shall have the same effect as a unanimous vote.
Section 3.11 COMPENSATION. The board of directors, by the affirmative
vote of a majority of directors then in office, and irrespective of any
personal interest of any of its members, shall have authority to establish
reasonable compensation of all directors for services to the corporation as
directors, officers or otherwise, and to authorize the payment of the
directors' expenses, if any, of attendance at each meeting of the board in
addition to such compensation.
Section 3.12 PRESUMPTION OF ASSENT. A director who is present at a
meeting of the board of directors at which action on any corporate matter is
taken shall be conclusively presumed to have assented to the action taken
unless his or her dissent shall be entered in the minutes of the meeting or
unless he or she shall file his or her written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered or certified mail to the secretary of
the corporation immediately after the adjournment of the meeting. Such right
to dissent shall not apply to a director who voted in favor of such action.
Section 3.13 COMMITTEES. A majority of the directors may create one or
more committees and appoint members of the board to serve on the committee or
committees. Each committee shall have two or more members, who serve at the
pleasure of the board of directors. Members of any committee of the board of
directors may participate in and act at any meeting of such committee through
the use of a conference telephone or other communications equipment by means of
which all persons participating in the meeting can hear each other.
Participation in such meeting by such means shall constitute attendance and
presence in person at the meeting of the person or persons so participating for
all purposes. Unless in its appointment the board of directors decides
otherwise, a majority of any committee shall constitute a quorum and a majority
of a quorum shall be necessary for committee action. A committee may act by
unanimous consent in writing without a meeting, and shall decide the time and
place of its meetings and the notice therefor, unless the board of directors
decides otherwise. To the extent specified by the board of directors, a
committee may exercise the power of the board, subject to such limitations as
may be provided by law.
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ARTICLE 4
OFFICERS
Section 4.1 NUMBER. The officers of the corporation shall be a
president, a treasurer, and a secretary, and such number of vice presidents,
assistant treasurers, assistant secretaries and other officers as may be
elected by the board of directors. Any two or more offices may be held by the
same person.
Section 4.2 ELECTION AND TERM OF OFFICE. The officers of the corporation
shall be elected annually by the board of directors at the first meeting of the
board of directors held after each annual meeting of the shareholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as conveniently may be. Vacancies may be filled or new
offices created and filled at any meeting of the board of directors. Each
officer shall hold office until his or her successor shall have been duly
elected and shall have qualified, until his or her death or resignation or
until he or she shall have been removed in the manner hereinafter provided,
whichever first occurs.
Section 4.3 REMOVAL. Any officer may be removed by the board of
directors whenever in its judgment the best interests of the corporation would
be served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election of an officer shall not of
itself create contract rights.
Section 4.4 PRESIDENT. The president shall be the chief executive
officer of the corporation and, subject to the direction and control of the
board of directors, he or she shall be in charge of the business of the
corporation. In general, he or she shall discharge all duties incident to the
chief executive office of the corporation and such other duties as may be
prescribed by the board of directors from time to time. Without limiting the
generality of the foregoing, the president shall see that the resolutions and
directions of the board of directors are carried into effect except in those
instances in which that responsibility is specifically assigned to some other
person by the board of directors; he or she shall preside at all meetings of
the shareholders; and, except in those instances in which the authority to
execute is expressly delegated to another officer or agent of the corporation
or a different mode of execution is expressly prescribed by the board of
directors, he or she may execute for the corporation certificates for its
shares (the issue of which shall have been authorized by the board of
directors), and any contracts, deeds, mortgages, bonds or other instruments
which the board of directors has authorized, and he or she may (without
previous authorization by the board of directors) execute such contracts and
other instruments as the conduct of the corporation's business in its ordinary
course requires, and he or she may accomplish such execution in each case
either individually or with the secretary, any assistant secretary, or any
other officer thereunto authorized by the board of directors, according to the
requirements of the form of the instrument. Also, the president may vote all
securities which the corporation is entitled to vote except as and to the
extent such authority shall be vested in a different officer or agent of the
corporation by the board of directors.
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Section 4.5 THE VICE PRESIDENTS. The vice president (and, in the event
that there is more than one vice president, each of the vice presidents) shall
assist the president in the discharge of his or her duties as the president may
direct and shall perform such other duties as from time to time may be assigned
to him or her by the president or by the board of directors. In the absence of
the president or in the event of his or her inability or refusal to act, the
vice president (or in the event there be more than one vice president, the vice
presidents in the order designated by the board of directors, or by the
president if the board of directors has not made such a designation, or in the
absence of any designation, then in the order of seniority of tenure as vice
president) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. Except in those instances in which the authority to execute is
expressly delegated to another officer or agent of the corporation or a
different mode of execution is expressly prescribed by the board of directors
or these by-laws, the vice president (or each of them if there are more than
one) may execute for the corporation certificates for its shares (the issue of
which shall have been authorized by the board of directors), and any contracts,
deeds, mortgages, bonds or other instruments which the board of directors has
authorized, and he or she may (without previous authorization by the board of
directors) execute such contracts and other instruments as the conduct of the
corporation's business in its ordinary course requires, and he or she may
accomplish such execution in each case either individually or with the
secretary, any assistant secretary or any other officer thereunto authorized by
the board of directors, according to the requirements of the form of the
instrument.
Section 4.6 THE TREASURER. The treasurer shall be the principal
accounting and financial officer of the corporation and as such shall perform
all the duties incident to the office of treasurer and such other duties as
from time to time may be assigned to him or her by the board of directors or
the president. Without limiting the generality of the foregoing, he or she
shall (a) have charge of and be responsible for the maintenance of adequate
books of account for the corporation; and (b) have charge and custody of all
funds and securities of the corporation, and be responsible therefor and for
the receipt and disbursement thereof. If required by the board of directors,
the treasurer shall give a bond for the faithful discharge of his or her duties
in such sum and with such surety or sureties as the board of directors may
determine.
Section 4.7 THE SECRETARY. The secretary shall perform all duties
incident to the office of secretary and such other duties as from time to time
may be assigned to him or her by the board of directors or president. Without
limiting the generality of the foregoing, he or she shall (a) record the
minutes of the meetings of the shareholders and the board of directors and will
record or keep the minutes of all committees in one or more books provided for
that purpose and shall include in such books the actions by written consent of
the shareholders and the board of directors; (b) see that all notices are duly
given in accordance with the provisions of these by-laws or as required by law;
(c) be the custodian of the corporate records and the seal of the corporation
(if a seal has been authorized by the board of directors) and certify the
by-laws, resolutions of the shareholders and board of directors and any
committees of the board of directors and other documents of the corporation as
being true and correct copies thereof; (d) keep a register of the post-office
address of each shareholder which shall be furnished to the secretary by such
shareholder; (e) sign with the
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president, or a vice president, or any other officer thereunto authorized by
the board of directors, certificates for shares of the corporation, the issue
of which shall have been authorized by the board of directors, and any
contracts, deeds, mortgages, bonds or other instruments which the board of
directors has authorized, and he or she may (without previous authorization by
the board of directors) sign with such other officers as aforesaid such
contracts and other instruments as the conduct of the corporation's business in
its ordinary course requires, in each case according to the requirements of the
form of the instrument, except when a different mode of execution is expressly
prescribed by the board of directors or these by-laws; and (f) have general
charge of the stock transfer books of the corporation.
Section 4.8 ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The
assistant treasurers and assistant secretaries shall perform such duties as
shall be assigned to them by the treasurer, in the case of assistant
treasurers, or the secretary, in the case of assistant secretaries, or by the
president or the board of directors in either case. Each assistant secretary
may sign with the president, or a vice president, or any other officer
thereunto authorized by the board of directors, certificates for shares of the
corporation, the issue of which shall have been authorized by the board of
directors, and any contracts, deeds, mortgages, bonds or other instruments
which the board of directors has authorized, and may (without previous
authorization by the board of directors) sign with such other officers as
aforesaid such contracts and other instruments as the conduct of the
corporation's business in its ordinary course requires, in each case according
to the requirements of the form of the instrument, except when a different mode
of execution is expressly prescribed by the board of directors. The assistant
treasurers shall, if required by the board of directors, give bonds for the
faithful discharge of their duties in such sums and with such sureties as the
board of directors shall determine.
Section 4.9 COMPENSATION. The officers' compensation shall be fixed from
time to time by the board of directors, and no officer shall be prevented from
receiving such compensation by reason of the fact that he or she is also a
director of the corporation.
ARTICLE 5
INDEMNIFICATION
Section 5.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. The corporation
shall, to the fullest extent to which it is empowered to do so by the Illinois
Business Corporation Act of 1983, as amended, or any other applicable laws as
may from time to time be in effect, indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, against all expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with
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such action, suit or proceeding, if such person acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that he or she is or was an employee or agent of the
corporation, or is or was serving at the request of the corporation as an
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding, if such person acted
in good faith and in a manner he or she reasonably believed to be in, or not
opposed to, the best interests of the corporation and with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement or conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he or she reasonably believed to be
in or not opposed to the best interests of the corporation or, with respect to
any criminal action or proceeding, that the person had reasonable cause to
believe that his or her conduct was unlawful.
Section 5.2 CONTRACT WITH THE CORPORATION. The provisions of this
Article 5 shall be deemed to be a contract between the corporation and each
director or officer who serves in any such capacity at any time while this
Article is in effect, and any repeal or modification of this Article 5 shall
not affect any rights or obligations hereunder with respect to any state of
facts then or theretofore existing or any action, suit or proceeding
theretofore or thereafter brought or threatened based in whole or in part upon
any such state of facts.
Section 5.3 INDEMNIFICATION OF EMPLOYEES AND AGENTS. Persons who are not
covered by the foregoing provisions of this Article 5 and who are or were
employees or agents of the corporation, or who are or were serving at the
request of the corporation as employees or agents of another corporation,
partnership, joint venture, trust or other enterprise, may be indemnified to
the extent authorized at any time or from time to time by the board of
directors; provided, however, that to the extent that such employee or agent
has been successful, on the merits or otherwise, in the defense of any action,
suit or proceeding to which he or she was made a party by reason of the fact
that he or she is or was an employee or agent acting in the above-described
capacity, or in defense of any claim, issue or matter therein, the corporation
shall indemnify such employee or agent against expenses (including attorneys'
fees) actually and reasonably incurred by him or her in connection therewith.
Section 5.4 ADVANCEMENT OF EXPENSES. The corporation shall pay expenses
incurred by any officer or director, and may pay expenses incurred by any
employee or agent, in defending a civil or criminal action, suit or proceeding
in advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the director, officer, employee or
agent to repay such amount if it shall ultimately be determined that he or she
is not
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entitled to be indemnified by the corporation as authorized by these by-laws or
by the Illinois Business Corporation Act of 1983 as amended.
Section 5.5 OTHER RIGHTS OF INDEMNIFICATION. The indemnification or
advancement of expenses provided or permitted by this Article 5 shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
by law or otherwise, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such person.
ARTICLE 6
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 6.1 CONTRACTS. The board of directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances; provided, however,
that this Section 6.1 shall not be a limitation on the powers of office granted
under Article 4 of these by-laws.
Section 6.2 LOANS. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by the board of directors or a duly authorized committee thereof.
Such authority may be general or confined to specific instances.
Section 6.3 CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation shall be signed by such officer or officers, agent or
agents of the corporation and in such manner as shall from time to time be
determined by the board of directors or by an officer or officers of the
corporation designated by the board of directors to make such determination.
Section 6.4 DEPOSITS. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositaries as the board of directors
or such officer or officers designated by the board of directors may select.
ARTICLE 7
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 7.1 CERTIFICATES FOR SHARES. Certificates representing shares of
the corporation shall be signed by the president or a vice president and by the
treasurer or an assistant treasurer or the secretary or an assistant secretary
and, if the corporation has a corporate seal, may be sealed with such seal or a
facsimile thereof. All certificates for shares shall be consecutively
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numbered or otherwise identified and shall state the name of the person to whom
the shares represented thereby are issued, the number and class of shares, with
designation of series, if any, the date of issue, the fact that the corporation
is organized under Illinois law, and such other information or statement as may
be required by law. The name and address of each shareholder, the number of
shares held and the date on which the certificates for the shares were issued
shall be entered on the stock transfer books of the corporation. The person in
whose name shares are registered on the books of the corporation shall be
deemed the owner thereof for all purposes as regards the corporation.
Section 7.2 TRANSFERS OF SHARES; LOST CERTIFICATES. Upon surrender to
the corporation or the transfer agent of the corporation of a certificate for
shares duly endorsed or accompanied by proper evidence of succession,
assignment, or other authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books, provided that
the corporation or a transfer agent of the corporation shall not have received
a notification of adverse interest and that the requirements of the new
reference system of the Illinois Revised Statutes has been met. No new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and canceled, except that in case of a lost
or destroyed certificate, or one so mutilated that it cannot be identified, a
new one may be issued therefor upon such terms and indemnity to the corporation
as the board of directors may prescribe.
ARTICLE 8
FISCAL YEAR
The fiscal year of the corporation shall be as fixed from time to time by
resolution of the board of directors.
ARTICLE 9
DIVIDENDS
The board of directors may from time to time declare, and the corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and the articles of incorporation of the
corporation.
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ARTICLE 10
SEAL
The board of directors may provide a corporate seal which shall be in the
form of a circle and shall have inscribed thereon the name of the corporation
and the words "Corporate Seal, Illinois." The corporate seal may be used by
causing it or a facsimile thereof to be impressed, affixed or in any manner
reproduced.
ARTICLE 11
AMENDMENTS
These by-laws may be altered, amended or repealed and new by-laws may be
adopted by the board of directors of the corporation or by the shareholders of
the corporation entitled to vote thereon, provided that no by-law adopted by
the shareholders may be altered, amended or repealed by the board of directors.
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EXHIBIT 10.149
CHANGE OF CONTROL AND EMPLOYMENT AGREEMENT
AGREEMENT ("Agreement") by and between Insurance Auto Auctions, Inc., an
Illinois corporation (the "Company") and ___________________ (the "Executive"),
dated as of February 23 , 1998.
The Board of Directors of the Company (the "Board") has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined below)
of the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied. Therefore, in order to accomplish these objectives, the
Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
(a) Subject to the next sentence, the "Effective Date" shall mean the
first date during the Change of Control Period (as defined in Section 1(b)) on
which a Change of Control (as defined in Section 2) occurs. However, if a
Change of Control occurs and if the Executive's employment with the Company is
terminated prior to the date on which the Change of Control occurs, and if it
is reasonably demonstrated by the Executive that such termination of employment
(i) was at the request of a third party who has taken steps reasonably
calculated to effect a Change of Control or (ii) otherwise arose in connection
with or anticipation of a Change of Control, then the "Effective Date" shall
mean the date immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing
on the date hereof and ending on the second anniversary of the date hereof;
provided, however, that on the date one year after the date hereof, and on each
annual anniversary of such date (such date, and each annual anniversary
thereof, a "Renewal Date"), unless this Agreement shall have been
terminated pursuant to Section 12(b)(ii), the Change of Control Period shall be
automatically extended by an additional year (so as to terminate two years from
such Renewal Date), unless at least 60 days prior to such Renewal Date the
Company gives notice to the Executive that the Change of Control Period shall
not be so extended, in which event the Change of Control Period shall terminate
one year after such Renewal Date.
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2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of
the voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of this
subsection (a), any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company shall not constitute a Change of Control; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual (other than an individual
whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board) who becomes a director
subsequent to the date hereof whose election or nomination for election by the
Company's shareholders was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board; or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination") unless, following such Business Combination,
(i) all or substantially all of the individuals and entities who were the
beneficial owners of the Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or indirectly,
more than 50% of the voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may be, of
the corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business Combination of the
Outstanding Company Voting Securities and (ii) at least a majority of the
members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing
for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
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3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the
employ of the Company subject to the terms and conditions of this Agreement,
for the period commencing on the Effective Date and ending on the second
anniversary of such date (the "Employment Period").
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements), authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned at any
time during the 120-day period immediately preceding the Effective Date and (B)
the Executive's services shall be performed at the location where the Executive
was employed immediately preceding the Effective Date or any office or location
less than 75 miles from such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours
to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities.
(b) Compensation.
(i) Base Salary. During the Employment Period, the Executive
shall receive an annual base salary ("Annual Base Salary"), which shall be paid
at a monthly rate, at least equal to twelve times the highest monthly base
salary paid or payable, including any base salary which has been earned but
deferred, to the Executive by the Company and its affiliated companies in
respect of the twelve-month period immediately preceding the month in which the
Effective Date occurs. During the Employment Period, the Annual Base Salary
shall be reviewed not later than 12 months after the last salary increase
awarded to the Executive prior to the Effective Date and thereafter at least
annually. Based on such review, the Board, in its discretion, can increase the
Annual Base Salary. Any increase in Annual Base Salary shall not serve to limit
or reduce any other obligation to the Executive under this Agreement. Neither
the initial Annual Base Salary nor any increase to the Annual Base Salary shall
be reduced. The term Annual Base Salary as utilized in this Agreement shall
refer to Annual Base Salary as increased. As used in this Agreement, the term
"affiliated companies" shall include any company controlled by, controlling or
under common control with the Company.
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(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to greater
of (A) the Executive's target bonus payable under the Company's Officer
Incentive Plan or Management Incentive Plan, as the case may be, or any
comparable bonus under any predecessor or successor plan, for the fiscal year
in which the Effective Date occurs (annualized in the event that the Executive
was not employed by the Company for the whole of such fiscal year) and (B) the
average of the Executive's annual bonuses actually paid under the Company's
Officer Incentive Plan or Management Incentive Plan, as the case may be, for
the three fiscal years immediately preceding the fiscal year in which the
Effective Date occurs (annualized in the event that the Executive was not
employed by the Company for the whole of any such fiscal years). Each such
Annual Bonus shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of such Annual
Bonus.
(iii) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at
any time during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive, those provided generally at any time after
the Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit
plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company
and its affiliated companies. Furthermore, the Executive shall pay the same
amounts for all such benefits as other peer executives of the Company and its
affiliated companies.
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(v) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, in effect
generally at any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including use of an automobile
and payment of related expenses, or an automobile allowance, in accordance
with the most favorable plans, practices, programs and policies of the Company
and its affiliated companies in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more favorable
to the Executive, in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period,
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to personal secretarial and other
assistance, at least equal to the most favorable of the foregoing provided to
the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives
of the Company and its affiliated companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If the
Disability of the Executive occurs during the Employment Period, the Company
may give to the Executive written notice in accordance with Section 12(c) of
this Agreement of its intention to terminate the Executive's employment. In
such event, the Executive's employment with the Company shall terminate
effective on the 30th day after receipt of such notice by the Executive (the
"Disability Effective Date"), unless within the 30-day period after such
receipt, the Executive returns to full-time performance of the Executive's
duties. For purposes of this Agreement, "Disability" shall mean the absence of
the Executive from the Executive's duties with the Company on a full-time
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basis for 180 consecutive business days as a result of incapacity due to mental
or physical illness, which is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the
Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement,
"Cause" shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), 30 days after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief Executive
Officer of the Company which specifically identifies the manner in which the
Board or Chief Executive Officer believes that the Executive has not
substantially performed the Executive's duties; or
(ii) the willful engaging by the Executive in illegal conduct
or gross misconduct which is materially and demonstrably injurious to the
Company, upon the Company giving the Executive written notice thereof, in each
case as determined in the good faith opinion of the Board and set forth in a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before
the Board) specifying the particulars thereof in detail. For purposes of this
provision, no act or failure to act on the part of the Executive shall be
considered "willful" unless it is done, or omitted to be done, by the Executive
in bad faith or without reasonable belief that the Executive's action or
omission was in the best interests of the Company. Any act or failure to act
based upon authority given pursuant to a resolution duly adopted by the Board
or upon the instructions of the Chief Executive Officer or a senior officer of
the Company or based upon the advice of counsel for the Company shall be
conclusively presumed to be done or omitted to be done by the Executive in good
faith and in the best interests of the Company.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including status, offices, titles
and reporting requirements), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any other action by the
Company which results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
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(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given
by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Section 4(a)(i)(B) of this
Agreement or the Company's requiring the Executive to travel on Company
business to a substantially greater extent than required immediately prior to
the Effective Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for Cause,
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(c) of
this Agreement. For purposes of this Agreement, a "Notice of Termination"
means a written notice which (i) indicates the specific termination provision
in this Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated and
(iii) if the Date of Termination (as defined below) is other than the date of
receipt of such notice, specifies the termination date (which date shall be not
more than 30 days after the giving of such notice). The failure by the
Executive or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively, hereunder or
preclude the Executive or the Company, respectively, from asserting such fact
or circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
date on which the Company notifies the Executive of such termination and (iii)
if the Executive's employment is terminated by reason of death or Disability,
the date of death of the Executive or the Disability Effective Date, as the
case may be.
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<PAGE> 8
6. Obligations of the Company upon Termination.
(a) Good Reason; Other than for Cause, Death or Disability. If,
during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause, Death or Disability, or the Executive shall
terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid, (2) the
product of (x) the greater of (I) the Annual Bonus payable for the fiscal year
in which the Executive's Date of Termination occurs (annualized in the event
that the Executive was not employed by the Company for the whole of such fiscal
year) and (II) the average of the Executive's Annual Bonuses actually paid for
the three fiscal years immediately preceding the fiscal year in which the
Executive's Date of Termination occurs (annualized in the event that the
Executive was not employed by the Company for the whole of any such fiscal
years), including in each case any bonus or portion thereof which has been
earned but deferred, if any (such higher amount being referred to as the
"Highest Annual Bonus") and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of Termination, and
the denominator of which is 365 and (3) any compensation previously deferred by
the Executive (together with any accrued interest or earnings thereon) and any
accrued vacation pay, in each case to the extent not theretofore paid (the sum
of the amounts described in clauses (1), (2) and (3) shall be hereinafter
referred to as the "Accrued Obligations"); and
B. an amount equal to the product of (1) one and one-
half and (2) the sum of (x) the Executive's Annual Base Salary and (y) the
Highest Annual Bonus;
(ii) for 18 months after the Executive's Date of Termination,
the Company shall continue benefits to the Executive and/or the Executive's
family at least equal to those which would have been provided to them in
accordance with the plans, programs, practices and policies described in
Section 4(b)(iv) of this Agreement (the "Company Welfare Plans") if the
Executive's employment had not been terminated, provided, however, that such
benefits shall be continued only to the extent permissible under the terms of
such Company Welfare Plans and applicable law. If any of the Company's Welfare
Plans do not permit continued participation by the Executive and his family
after the Executive's Date of Termination, the Company shall reimburse the
Executive for the cost of obtaining comparable coverage from a third-party
insurer. If during the 18 month period described herein the Executive is
reemployed by another employer, the rights of the Executive and his family to
receive benefits under any Company Welfare Plan shall terminate on the date he
and his family become eligible to receive comparable benefits from such
employer. If, at the end of the 18-month period described herein, the Executive
is receiving medical benefits under the Company's medical plan and is not
employed by another employer, the
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<PAGE> 9
Company shall continue to provide medical benefits to the Executive and/or the
Executive's family pursuant to Title I, Part 6 of the Employee Retirement
Income Security Act of 1974, as amended ("COBRA"), and for such purpose, the
end of such 18-month period shall be considered the date of the "qualifying
event" as such term is defined by COBRA, provided, however, that if the
Executive is receiving medical benefits from a third-party insurer pursuant to
this clause (ii), and is not then employed by another employer, the Company
shall reimburse the Executive for the portion of the cost of such medical
benefits equal to excess of the cost charged by the third-party insurer over
the amount that would have been paid by the Executive under COBRA for continued
coverage under the Company's medical plan during the COBRA period;
(iii) for 18 months after the Executive's Date of Termination,
the Company shall continue the Executive's participation as an active employee
in any excess or supplemental pension or retirement plan maintained by the
Company in which the Executive participated as of such Date of Termination; and
(iv) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or agreement of
the Company and its affiliated companies (such other amounts and benefits shall
be hereinafter referred to as the "Other Benefits").
The payments made and benefits provided pursuant to this Section 6(a) will be
in lieu of any other severance benefits offered by the Company pursuant to any
plan, program, policy or practice that may be in effect.
(b) Death. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be
paid to the Executive's estate or beneficiary, as applicable, in a lump sum in
cash within 30 days of the Date of Termination. The "Other Benefits" to
be provided shall include, without limitation, and the Executive's estate
and/or beneficiaries shall be entitled to receive, benefits at least equal to
the most favorable benefits provided by the Company and affiliated companies to
the estates and beneficiaries of peer executives of the Company and such
affiliated companies under such plans, programs, practices and policies
relating to death benefits, if any, as in effect at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in effect on the
date of the Executive's death.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive,
other than for payment of Accrued Obligations and the timely
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<PAGE> 10
payment or provision of Other Benefits. Accrued Obligations shall be paid to
the Executive in a lump sum in cash within 30 days of the Date of Termination.
The "Other Benefits" to be provided shall include, without limitation, and the
Executive shall be entitled after the Disability Effective Date to receive,
disability and other benefits at least equal to the most favorable of those
generally provided by the Company and its affiliated companies to disabled
executives and/or their families in accordance with such plans, programs,
practices and policies relating to disability, if any, as in effect generally
with respect to other peer executives and their families at any time during the
120-day period immediately preceding the Effective Date or, if more favorable
to the Executive and/or the Executive's family, as in effect at any time
thereafter.
(d) Cause; Other than for Good Reason. If the Executive's employment shall be
terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the
obligation to pay to the Executive (x) his Annual Base Salary through the Date
of Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the
Employment Period, excluding a termination for Good Reason, this Agreement
shall terminate without further obligations to the Executive, other than for
Accrued Obligations and the timely payment or provision of Other Benefits. In
such case, all Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination.
7. Non-Exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
affiliated companies and for which the Executive may qualify, nor, subject to
Section 12(b)(iii), shall anything herein limit or otherwise affect such
rights as the Executive may have under any contract or agreement with the
Company or any of its affiliated companies. Amounts which are vested benefits
or which the Executive is otherwise entitled to receive under any plan or
policy until the Date of Termination shall be payable in accordance with the
practice or program of, or any contract or agreement with, the Company or any
of its affiliated companies at or subsequent to such plan, policy, practice or
program or contract or agreement, except as explicitly modified by this
Agreement.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and such
amounts shall not be reduced whether or not the Executive obtains other
employment. The Company agrees to pay as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company, the Executive or others of the validity or enforceability of,
or liability under, any provision of this Agreement or any guarantee
10
<PAGE> 11
of performance thereof (including as a result of any contest by the Executive
about the amount of any payment pursuant to this Agreement), plus in each case
interest on any delayed payment at the applicable Federal rate provided for in
Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the
"Code").
9. Excise Tax.
(a) Gross-Up Payment. In the event a Change of Control shall
occur, and a determination is made by legislation, regulation, ruling directed
to the Executive or the Company, or court decision that the aggregate amount
of any payment made to the Executive hereunder, or pursuant to any plan,
program or policy of the Company in connection with, on account of, or as a
result of, such Change of Control (the "Total Payments") will be subject to
the excise tax provisions of Section 4999 of the Code, or any successor section
thereof, the Executive shall be entitled to receive from the Company, in
addition to any other amounts payable thereunder, a lump sum payment (the
"Gross-Up Payment"), sufficient to cover the full cost of such excise taxes and
the Executive's federal, state and local income and employment taxes on this
additional payment so that the net amount retained by the Executive, after the
payment of all such excise taxes on the Total Payments, and all federal, state
and local income and employment taxes and excise taxes on the Gross-Up Payment,
shall be equal to the Total Payments. The Total Payments, however, shall be
subject to any federal, state and local income and employment taxes thereon.
For this purpose, the Executive shall be deemed to be in the highest marginal
rate of federal, state and local taxes. Such amount shall be payable to the
Executive as soon as may be reasonably practicable after such final
determination is made.
(b) Determination. The Executive and the Company shall
mutually and reasonably determine whether or not such determination has
occurred, whether any appeal to such determination should be made and the
amount of the Gross-Up Payment to be made to the Executive. Prior to the
making of any such Gross-Up Payment, either party may request a determination
as to the amount of such Gross-Up Payment. If such a determination is
requested, it shall be made promptly, at the Company's expense, by independent
tax counsel selected by the Executive and approved by the Company (which
approval shall not unreasonably be withheld), and such determination shall be
conclusive and binding on the parties. The Company shall provide such
information as such counsel may reasonably request, and such counsel may engage
accountants or other experts at the Company's expense to the extent that they
deem necessary or advisable to enable them to reach a determination. The term
"independent tax counsel" as used herein shall mean a law firm of recognized
expertise in federal income tax matters that has not previously advised or
represented either party.
10. Confidentiality. At all times, the Executive agrees to be bound
by the provisions of the Restrictions on Use of Trade Secrets and Records and
Assignments of Inventions Agreement (the "Confidentiality Agreement") between
Executive and the Company, as in effect from time to time, the provisions of
which are incorporated by reference in this Agreement. In no
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<PAGE> 12
event shall an asserted violation of the provisions of this Section 10 (or such
Confidentiality Agreement) constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
11. Assignment; Binding Effect; Successors.
(a) Assignment. This Agreement is personal to the Executive
and without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) Binding Effect. This Agreement shall inure to the benefit
of and be binding upon the Company and its successors and assigns.
(c) Successors. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company to
assume expressly and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as herein before defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
12. Miscellaneous.
(a) Governing Law; Headings.
(i) This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois without reference to the
principles of conflict of laws thereof.
(ii) The headings in this Agreement are not part of the
provisions hereof and shall have no force or effect.
(b) Amendment; Termination; Employment.
(i) Except as otherwise expressly provided herein, this
Agreement may be amended or modified only by written agreement duly executed
and delivered by the parties hereto or their respective successors or legal
representatives.
(ii) This Agreement may be terminated at any time prior
to the Effective Date by the Company or the Executive, in which case the
Executive shall have no further rights under this Agreement. No such
termination shall affect the parties' rights and obligations
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<PAGE> 13
under the Confidentiality and Non-Solicitation Agreement referred to in Section
10 or any other agreement between the Executive and the Company.
(iii) The Executive and the Company acknowledge that,
except as may otherwise be provided under any other written agreement between
the Executive and the Company, the employment of the Executive by the Company
is "at will." From and after the Effective Date, this Agreement shall supersede
any other agreement between the parties with respect to the subject matter
hereof.
(c) Notices. All notices and other communications given
hereunder shall be in writing and shall be given by hand delivery (including
overnight courier or messenger) or electronic facsimile transmission to the
other party or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
If to the Company:
Insurance Auto Auctions, Inc.
850 East Algonquin Road, Suite 100
Schaumburg, Illinois 60173
Facsimile: (847) 839-3678
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
on the date on which delivered if by hand delivery, the date of confirmation of
transmission if by electronic facsimile transmission, the next business day if
by nationally-recognized overnight delivery service or the first to occur of
either the date of actual receipt or the fifth business day following deposit
in the U.S. mail if by mail.
(d) Invalidity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
(e) Taxes. The Company may withhold from any amounts payable
under this Agreement such Federal, state, local or foreign taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
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<PAGE> 14
(f) Waiver. The Executive's or the Company's failure to
insist upon strict compliance with any provision of this Agreement or the
failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement,
shall not be deemed to be a waiver of such provision or right or of any other
provision or right of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date first above written.
EXECUTIVE
__________________________________________
INSURANCE AUTO AUCTIONS, INC.
By: _______________________________________
Its: ______________________________________
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EXHIBIT 10.151
AMENDMENT TO REVOLVING CREDIT AGREEMENT
THIS AMENDMENT TO REVOLVING CREDIT AGREEMENT (the "Amendment"), dated as
of December 1, 1997, is entered into by and between LASALLE NATIONAL BANK, a
national banking association ("Lender"), and INSURANCE AUTO AUCTIONS, INC., a
California corporation ("Borrower).
WHEREAS, Lender has previously made available to Borrower a credit
facility pursuant to the terms and conditions of that certain Revolving Credit
Agreement, dated as of April 4, 1997, by and between Lender and Borrower,
which, together with all exhibits and schedules thereto and amendments and
modifications thereof made in accordance with the terms thereof, if any, is
hereinafter referred to as the "Loan Agreement"; and
WHEREAS, pursuant to the Loan Agreement, Lender has extended certain loans
and credit extensions to Borrower; and
WHEREAS, Borrower has requested that Lender amend the Loan Agreement to
provide for the issuance of letters of credit by Lender for the account of
Borrower pursuant to the terms and conditions of this Amendment as set forth
herein; and
WHEREAS, Lender is willing to amend the Loan Agreement but only on the
terms and conditions set forth in this Amendment; and
WHEREAS, capitalized terms used but not defined herein have the meanings
assigned to such terms in the Loan Agreement.
NOW, THEREFORE, in consideration of the premises, to induce Lender to
enter into this Amendment, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, it is hereby agreed
by each party hereto as follows:
Section 1. Amendment of the Loan Agreement. It is hereby agreed and
understood that, subject to the complete fulfillment and performance of the
conditions precedent set forth in Section 2 of this Amendment, the Loan
Agreement is hereby amended as follows:
(a) Section 1.1. The definition of "Unused Revolving Commitment"
contained in Section 1.01 of the Loan Agreement is hereby deleted in its
entirety and replaced with the following:
"Unused Revolving Commitment" means, at any time, the Revolving
Commitment at such time, minus the aggregate principal amount of all
outstanding Revolving Advances outstanding at such time, minus the
aggregate stated amount of all outstanding LCs, and minus the
aggregate amount of all outstanding Reimbursement Obligations.
<PAGE> 2
(b) Section 1.2. The following is hereby added to the Loan Agreement as
Section 2.13:
Section 2.13. Letters of Credit.
(a) LC Commitment. On the terms and subject to the conditions of
this Agreement, the Lender agrees, from time to time to issue for the account
of Borrower commercial and/or standby letters of credit (herein collectively
called "LCs" and individually called an "LC") during the period commencing on
the date hereof and continuing through the Revolving Commitment Termination
Date of such stated amounts as Borrower may from time to time request and the
Lender in its sole discretion shall agree to issue, but not exceeding, in the
aggregate, an amount for LCs outstanding at any one time equal to the lesser of
the Unused Revolving Commitment and $500,000; provided, however, that no LC may
have an expiration date occurring after the Revolving Commitment Termination
Date except as otherwise permitted by Lender in its sole and absolute
discretion. The Lender shall not issue any LC unless Borrower would be in
compliance with the limits and sublimits contained in this Agreement
immediately after the issuance thereof. The foregoing commitment of the Lender
is herein called the "LC Commitment".
(b) LC Documentation. Each of Borrower's requests for an LC must be
received by the Lender at least three Business Days prior to the requested
issue date of such LC, and shall be accompanied by a duly completed application
therefor executed by a Responsible Officer (each such application herein called
an "LC Application") and such other documents, including contracts, in support
thereof as the Lender may require, and all of such applications, documents and
contracts shall be in form and substance satisfactory to the Lender. In
addition, such LC shall be in form and substance satisfactory to the Lender.
(c) Agreement to Repay LC Drawings.
(i) Borrower hereby agrees to reimburse the Lender immediately upon
demand for each payment or disbursement made by the Lender under any LC
honoring any demand for payment made by the beneficiary thereunder,
together with interest on the amount so paid or disbursed by the Lender
from the date a demand for payment was made by the Lender to but not
including the date the Lender is reimbursed therefor, at a rate per annum
equal to the Base Rate from time to time in effect (but not less than the
Base Rate in effect on the date of such payment or disbursement). Interest
shall be computed for the actual number of days elapsed on the basis of a
year consisting of 360 days. Borrower's obligations to reimburse the Lender
set forth in this Section 2.13(c) are collectively called the
"Reimbursement Obligation." Lender at any time may make a Revolving Advance
to Borrower to effect payment of a Reimbursement Obligation.
(ii) The obligations of Borrower to reimburse the Lender for
payments and disbursements made by the Lender under any LC honoring a
demand for payment made by the beneficiary thereunder shall be absolute and
unconditional under any and all
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<PAGE> 3
circumstances and irrespective of any setoff, counterclaim or defense to
payment which Borrower may have or have had against the Lender or such
beneficiary, including, without limitation, any defense based on the
failure of such demand for payment to conform to the terms of such LC or
any nonapplication or misapplication by such beneficiary of the proceeds of
such demand for payment or the legality, validity, regularity or
enforceability of such LC or any document or contract related to or
required to be presented under the terms of such LC; provided, however,
that Borrower shall not be obligated to reimburse the Lender for any
wrongful payment or disbursement made by the Lender under such LC as a
result of acts or omissions constituting gross negligence or willful
misconduct on the part of the Lender or any of its officers, employees or
agents.
(d) Mandatory Payment of LC Liability. Borrower agrees that, upon the
occurrence and continuation of an Event of Default or the occurrence of the
Revolving Commitment Termination Date, it will immediately, without notice or
demand, at Borrower's option, (i) pay to the Lender an amount equal to the
amount of the then aggregate stated amount (the stated amount of any LC issued
pursuant to this Agreement shall equal the (a) initial face amount of the LC
less (b) the aggregate amount of funds disbursed pursuant to the LC) of all LCs
issued and outstanding hereunder or (ii) within five Business Days of such
Event of Default or the Revolving Commitment Termination Date, replace each LC
issued and outstanding hereunder with substitute letters of credit or similar
instruments, thereby extinguishing all liability of the Lender, whether fixed
or contingent, under or with respect to all such LCs. Any amounts so received
by the Lender pursuant to the provisions of the foregoing sentence shall be
retained by the Lender as collateral security for the Obligations of Borrower
to Lender or applied by the Lender to such Obligations in such order as it may
elect.
(e) Obligations of Borrower Under The Loan Documents The Lender shall,
promptly following its receipt thereof, examine all documents purporting to
represent a demand for payment by the beneficiary under any LC issued by the
Lender to ascertain that the same appear on their fact to be in conformity with
the terms and conditions of such LC. If, after examination, the Lender shall
have determined that a demand for payment under such LC does not conform to the
terms and conditions of such LC, then the Lender shall, as soon as reasonably
practicable, give notice to the beneficiary to the effect that negotiation was
not in accordance with the terms and conditions of such LC, stating the reasons
therefor and that the relevant document is being held at the disposal of such
beneficiary or is being returned to such beneficiary, as the Lender may elect.
The beneficiary may attempt to correct any such nonconforming demand for
payment under such LC is, and to the extent that, such beneficiary is entitled
(without regard to the provisions of this sentence) and able to do so. If the
Lender determines that a demand for payment under such LC conforms to the terms
and conditions of such LC, then the Lender shall provide prompt notice to
Borrower of receipt of all demands for payment under any LC. The Lender shall
have the right to require the beneficiary to surrender such LC to the Lender on
the stated expiration date of such LC.
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<PAGE> 4
(f) Conditions. Notwithstanding any other provision of this Agreement,
no LC shall be required to be issued hereunder unless the Lender in its sole
discretion agrees to issue such LC and in addition thereto all of the conditions
precedent to the issuing of such LC specified in Section 3.02 have been
satisfied.
(g) LC Fees. Borrower shall from time to time pay to the Lender such
standard fees, charges and other amounts as the Lender may from time to time
require with respect to commercial and/or standby letters of credit issued
pursuant to this Section 2.13. In the case of standby letters of credit,
Borrower shall, in addition to the amounts referred to in the first sentence of
this Section 2.2(g), pay to the Lender an LC commitment fee as agreed to by
Borrower and the Lender.
Section 2. Conditions Precedent. The effectiveness of this Amendment and
the obligations of Lender hereunder are subject to the satisfaction, or waiver
by Lender, of the following conditions precedent on or before the date hereof in
addition to the conditions precedent specified in Section 3.02 of the Loan
Agreement:
A. Borrower shall have paid and/or reimbursed all fees, costs and
expenses relating to this Amendment and owed to Lender pursuant to the Loan
Agreement, if so requested by Lender; and
B. Borrower shall have delivered, or caused to be delivered, original
fully completed, dated and executed originals of this Amendment to Lender.
C. The following statements shall be true and correct and Borrower, by
executing and delivering this Amendment to Lender, hereby certifies that the
following statements are true and correct as of the date hereof:
i. Other than as expressly contemplated by this Amendment, since the
date of the most recent financial statements furnished by Borrower to
Lender (which financial statements were true and correct in all
material respects and otherwise conformed to the requirements set
forth in the Loan Agreement for such financial statements), there
shall have been no change which has had or will have a material
adverse effect on the business, operations, properties, condition
(financial or otherwise) or prospects of Borrower;
ii. The representations and warranties of Borrower set forth in the
Loan Agreement and of Borrower set forth in this Amendment are true
and correct in all material respects on and as of the date of this
Amendment with the same effect as though made on and as of such date,
except to the extent such representations and warranties expressly
relate to an earlier date;
iii. After giving effect to this Amendment, no Default or Event of
Default has occurred and is continuing; and
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<PAGE> 5
iv. No consents, licences or approvals are required in connection
with the execution, delivery and performance by Borrower of this
Amendment or the validity or enforceability against Borrower of this
Amendment which have not been obtained and delivered to Lender.
Section 3. Miscellaneous.
A. Except as expressly amended and modified by this Amendment, the
Loan Agreement and the Loan Documents are and shall continue to be in full
force and effect in accordance with the terms thereof.
B. This Amendment may be executed by the parties hereto in
counterparts, and all of such counterparts taken together shall be deemed to
constitute one and the same instrument.
C. This Amendment shall be construed in accordance with and governed
by the internal laws, and not the laws of conflict, of the State of Illinois.
D. The headings contained in this Amendment are for ease of
reference only and shall not be considered in construing this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to Loan
and Security Agreement to be duly executed as of the date first above written.
INSURANCE AUTO AUCTIONS, INC.
By: /s/ Linda C. Larrabee
--------------------------------------
Title: Senior Vice President
and Chief Financial Officer
-------------------------------
LASALLE NATIONAL BANK
By: /s/ Meg Marion
--------------------------------------
Title: Senior Vice President
-------------------------------
5
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF INSURANCE AUTO AUCTIONS, INC.
<TABLE>
<CAPTION>
Jurisdiction
Name of Incorporation
---- ----------------
<S> <C>
Insurance Auto Auctions Corp. (wholly owned) Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23.1
Consent of KPMG Peat Marwick LLP
March 26, 1998
Board of Directors
Insurance Auto Auctions
We consent to incorporation by reference in the registration statement No.
33-48805 on Form S-8 of Insurance Auto Auctions, Inc. of our report dated
February 10, 1998 relating to the consolidated balance sheets of Insurance Auto
Auctions, Inc. and subsidiaries as of December 31, 1997 and 1996 and the
related consolidated statements of earnings, shareholder's equity, and cash
flows for each of the years in the three-year period ended December 31, 1997,
which report appears in the December 31, 1997 annual report on Form 10-K of
Insurance Auto Auctions, Inc.
Very truly yours,
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
February 10, 1998
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a
director or officer, or both, of INSURANCE AUTO AUCTIONS, An Illinois
corporation (the "Company"), does hereby constitute and appoint JAMES P. ALAMPI
AND GASPARE G. RUGGIRELLO, each with full power to act, as the true and lawful
attorney and agent of the undersigned, with full power of substitution and
resubstitution of each said attorneys, to execute, file or deliver any and all
instruments and to do any and all acts and things which said attorneys and
agents, or any of them, deem advisable to enable the Company to comply with the
Securities Exchange Act of 1934, as amended, and any requirements of the
Securities and Exchange Commission in respect thereto, relating to annual
reports on Form 10-K, including specifically, but without limitation of the
general authority hereby granted, the power and authority to sign his name in
the name and on behalf of the Company, as indicated below opposite his
signature, to annual reports on Form 10-K or any amendment or papers
supplemental thereto; and the undersigned does hereby fully ratify and confirm
all that said attorney and agent or the substitute of any of them, shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents, this
9th day of March, 1998.
NAME TITLE
---- -----
/s/ BRADLEY S. SCOTT Director and Chairman
- -----------------------------
Bradley S. Scott
Director, President and
- ----------------------------- Chief Executive Officer
James P. Alampi
Senior Vice President and
- ----------------------------- Chief Financial Officer
Linda C. Larrabee
Director
- -----------------------------
Maurice A. Cocca
Director
- -----------------------------
Susan B. Gould
Director
- -----------------------------
Christopher G. Knowles
Director
- -----------------------------
Melvin A. Martin
Director
- -----------------------------
Thomas J. O'Malia
Director
- -----------------------------
Glen E. Tullman
Director
- -----------------------------
John Wilcox
<PAGE> 2
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a
director or officer, or both, of INSURANCE AUTO AUCTIONS, An Illinois
corporation (the "Company"), does hereby constitute and appoint JAMES P. ALAMPI
AND GASPARE G. RUGGIRELLO, each with full power to act, as the true and lawful
attorney and agent of the undersigned, with full power of substitution and
resubstitution of each said attorneys, to execute, file or deliver any and all
instruments and to do any and all acts and things which said attorneys and
agents, or any of them, deem advisable to enable the Company to comply with the
Securities Exchange Act of 1934, as amended, and any requirements of the
Securities and Exchange Commission in respect thereto, relating to annual
reports on Form 10-K, including specifically, but without limitation of the
general authority hereby granted, the power and authority to sign his name in
the name and on behalf of the Company, as indicated below opposite his
signature, to annual reports on Form 10-K or any amendment or papers
supplemental thereto; and the undersigned does hereby fully ratify and confirm
all that said attorney and agent or the substitute of any of them, shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents, this
9th day of March, 1998.
NAME TITLE
---- -----
Director and Chairman
- -----------------------------
Bradley S. Scott
/s/ JAMES P. ALAMPI Director, President and
- ----------------------------- Chief Executive Officer
James P. Alampi
Senior Vice President and
- ----------------------------- Chief Financial Officer
Linda C. Larrabee
Director
- -----------------------------
Maurice A. Cocca
Director
- -----------------------------
Susan B. Gould
Director
- -----------------------------
Christopher G. Knowles
Director
- -----------------------------
Melvin A. Martin
Director
- -----------------------------
Thomas J. O'Malia
Director
- -----------------------------
Glen E. Tullman
Director
- -----------------------------
John Wilcox
<PAGE> 3
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a
director or officer, or both, of INSURANCE AUTO AUCTIONS, An Illinois
corporation (the "Company"), does hereby constitute and appoint JAMES P. ALAMPI
AND GASPARE G. RUGGIRELLO, each with full power to act, as the true and lawful
attorney and agent of the undersigned, with full power of substitution and
resubstitution of each said attorneys, to execute, file or deliver any and all
instruments and to do any and all acts and things which said attorneys and
agents, or any of them, deem advisable to enable the Company to comply with the
Securities Exchange Act of 1934, as amended, and any requirements of the
Securities and Exchange Commission in respect thereto, relating to annual
reports on Form 10-K, including specifically, but without limitation of the
general authority hereby granted, the power and authority to sign his name in
the name and on behalf of the Company, as indicated below opposite his
signature, to annual reports on Form 10-K or any amendment or papers
supplemental thereto; and the undersigned does hereby fully ratify and confirm
all that said attorney and agent or the substitute of any of them, shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents, this
9th day of March, 1998.
NAME TITLE
---- -----
Director and Chairman
- -----------------------------
Bradley S. Scott
Director, President and
- ----------------------------- Chief Executive Officer
James P. Alampi
/s/ LINDA C. LARRABEE Senior Vice President and
- ----------------------------- Chief Financial Officer
Linda C. Larrabee
Director
- -----------------------------
Maurice A. Cocca
Director
- -----------------------------
Susan B. Gould
Director
- -----------------------------
Christopher G. Knowles
Director
- -----------------------------
Melvin A. Martin
Director
- -----------------------------
Thomas J. O'Malia
Director
- -----------------------------
Glen E. Tullman
Director
- -----------------------------
John Wilcox
<PAGE> 4
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a
director or officer, or both, of INSURANCE AUTO AUCTIONS, An Illinois
corporation (the "Company"), does hereby constitute and appoint JAMES P. ALAMPI
AND GASPARE G. RUGGIRELLO, each with full power to act, as the true and lawful
attorney and agent of the undersigned, with full power of substitution and
resubstitution of each said attorneys, to execute, file or deliver any and all
instruments and to do any and all acts and things which said attorneys and
agents, or any of them, deem advisable to enable the Company to comply with the
Securities Exchange Act of 1934, as amended, and any requirements of the
Securities and Exchange Commission in respect thereto, relating to annual
reports on Form 10-K, including specifically, but without limitation of the
general authority hereby granted, the power and authority to sign his name in
the name and on behalf of the Company, as indicated below opposite his
signature, to annual reports on Form 10-K or any amendment or papers
supplemental thereto; and the undersigned does hereby fully ratify and confirm
all that said attorney and agent or the substitute of any of them, shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents, this
9th day of March, 1998.
NAME TITLE
---- -----
Director and Chairman
- -----------------------------
Bradley S. Scott
Director, President and
- ----------------------------- Chief Executive Officer
James P. Alampi
Senior Vice President and
- ----------------------------- Chief Financial Officer
Linda C. Larrabee
/s/ MAURICE A. COCCA Director
- -----------------------------
Maurice A. Cocca
Director
- -----------------------------
Susan B. Gould
Director
- -----------------------------
Christopher G. Knowles
Director
- -----------------------------
Melvin A. Martin
Director
- -----------------------------
Thomas J. O'Malia
Director
- -----------------------------
Glen E. Tullman
Director
- -----------------------------
John Wilcox
<PAGE> 5
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a
director or officer, or both, of INSURANCE AUTO AUCTIONS, An Illinois
corporation (the "Company"), does hereby constitute and appoint JAMES P. ALAMPI
AND GASPARE G. RUGGIRELLO, each with full power to act, as the true and lawful
attorney and agent of the undersigned, with full power of substitution and
resubstitution of each said attorneys, to execute, file or deliver any and all
instruments and to do any and all acts and things which said attorneys and
agents, or any of them, deem advisable to enable the Company to comply with the
Securities Exchange Act of 1934, as amended, and any requirements of the
Securities and Exchange Commission in respect thereto, relating to annual
reports on Form 10-K, including specifically, but without limitation of the
general authority hereby granted, the power and authority to sign his name in
the name and on behalf of the Company, as indicated below opposite his
signature, to annual reports on Form 10-K or any amendment or papers
supplemental thereto; and the undersigned does hereby fully ratify and confirm
all that said attorney and agent or the substitute of any of them, shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents, this
9th day of March, 1998.
NAME TITLE
---- -----
Director and Chairman
- -----------------------------
Bradley S. Scott
Director, President and
- ----------------------------- Chief Executive Officer
James P. Alampi
Senior Vice President and
- ----------------------------- Chief Financial Officer
Linda C. Larrabee
Director
- -----------------------------
Maurice A. Cocca
/s/ SUSAN B. GOULD Director
- -----------------------------
Susan B. Gould
Director
- -----------------------------
Christopher G. Knowles
Director
- -----------------------------
Melvin A. Martin
Director
- -----------------------------
Thomas J. O'Malia
Director
- -----------------------------
Glen E. Tullman
Director
- -----------------------------
John Wilcox
<PAGE> 6
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a
director or officer, or both, of INSURANCE AUTO AUCTIONS, An Illinois
corporation (the "Company"), does hereby constitute and appoint JAMES P. ALAMPI
AND GASPARE G. RUGGIRELLO, each with full power to act, as the true and lawful
attorney and agent of the undersigned, with full power of substitution and
resubstitution of each said attorneys, to execute, file or deliver any and all
instruments and to do any and all acts and things which said attorneys and
agents, or any of them, deem advisable to enable the Company to comply with the
Securities Exchange Act of 1934, as amended, and any requirements of the
Securities and Exchange Commission in respect thereto, relating to annual
reports on Form 10-K, including specifically, but without limitation of the
general authority hereby granted, the power and authority to sign his name in
the name and on behalf of the Company, as indicated below opposite his
signature, to annual reports on Form 10-K or any amendment or papers
supplemental thereto; and the undersigned does hereby fully ratify and confirm
all that said attorney and agent or the substitute of any of them, shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents, this
9th day of March, 1998.
NAME TITLE
---- -----
Director and Chairman
- -----------------------------
Bradley S. Scott
Director, President and
- ----------------------------- Chief Executive Officer
James P. Alampi
Senior Vice President and
- ----------------------------- Chief Financial Officer
Linda C. Larrabee
Director
- -----------------------------
Maurice A. Cocca
Director
- -----------------------------
Susan B. Gould
/s/ CHRISTOPHER G. KNOWLES Director
- -----------------------------
Christopher G. Knowles
Director
- -----------------------------
Melvin A. Martin
Director
- -----------------------------
Thomas J. O'Malia
Director
- -----------------------------
Glen E. Tullman
Director
- -----------------------------
John Wilcox
<PAGE> 7
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a
director or officer, or both, of INSURANCE AUTO AUCTIONS, An Illinois
corporation (the "Company"), does hereby constitute and appoint JAMES P. ALAMPI
AND GASPARE G. RUGGIRELLO, each with full power to act, as the true and lawful
attorney and agent of the undersigned, with full power of substitution and
resubstitution of each said attorneys, to execute, file or deliver any and all
instruments and to do any and all acts and things which said attorneys and
agents, or any of them, deem advisable to enable the Company to comply with the
Securities Exchange Act of 1934, as amended, and any requirements of the
Securities and Exchange Commission in respect thereto, relating to annual
reports on Form 10-K, including specifically, but without limitation of the
general authority hereby granted, the power and authority to sign his name in
the name and on behalf of the Company, as indicated below opposite his
signature, to annual reports on Form 10-K or any amendment or papers
supplemental thereto; and the undersigned does hereby fully ratify and confirm
all that said attorney and agent or the substitute of any of them, shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents, this
9th day of March, 1998.
NAME TITLE
---- -----
Director and Chairman
- -----------------------------
Bradley S. Scott
Director, President and
- ----------------------------- Chief Executive Officer
James P. Alampi
Senior Vice President and
- ----------------------------- Chief Financial Officer
Linda C. Larrabee
Director
- -----------------------------
Maurice A. Cocca
Director
- -----------------------------
Susan B. Gould
Director
- -----------------------------
Christopher G. Knowles
/s/ MELVIN A. MARTIN Director
- -----------------------------
Melvin A. Martin
Director
- -----------------------------
Thomas J. O'Malia
Director
- -----------------------------
Glen E. Tullman
Director
- -----------------------------
John Wilcox
<PAGE> 8
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a
director or officer, or both, of INSURANCE AUTO AUCTIONS, An Illinois
corporation (the "Company"), does hereby constitute and appoint JAMES P. ALAMPI
AND GASPARE G. RUGGIRELLO, each with full power to act, as the true and lawful
attorney and agent of the undersigned, with full power of substitution and
resubstitution of each said attorneys, to execute, file or deliver any and all
instruments and to do any and all acts and things which said attorneys and
agents, or any of them, deem advisable to enable the Company to comply with the
Securities Exchange Act of 1934, as amended, and any requirements of the
Securities and Exchange Commission in respect thereto, relating to annual
reports on Form 10-K, including specifically, but without limitation of the
general authority hereby granted, the power and authority to sign his name in
the name and on behalf of the Company, as indicated below opposite his
signature, to annual reports on Form 10-K or any amendment or papers
supplemental thereto; and the undersigned does hereby fully ratify and confirm
all that said attorney and agent or the substitute of any of them, shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents, this
9th day of March, 1998.
NAME TITLE
---- -----
Director and Chairman
- -----------------------------
Bradley S. Scott
Director, President and
- ----------------------------- Chief Executive Officer
James P. Alampi
Senior Vice President and
- ----------------------------- Chief Financial Officer
Linda C. Larrabee
Director
- -----------------------------
Maurice A. Cocca
Director
- -----------------------------
Susan B. Gould
Director
- -----------------------------
Christopher G. Knowles
Director
- -----------------------------
Melvin A. Martin
/s/ THOMAS J. O'MALIA Director
- -----------------------------
Thomas J. O'Malia
Director
- -----------------------------
Glen E. Tullman
Director
- -----------------------------
John Wilcox
<PAGE> 9
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a
director or officer, or both, of INSURANCE AUTO AUCTIONS, An Illinois
corporation (the "Company"), does hereby constitute and appoint JAMES P. ALAMPI
AND GASPARE G. RUGGIRELLO, each with full power to act, as the true and lawful
attorney and agent of the undersigned, with full power of substitution and
resubstitution of each said attorneys, to execute, file or deliver any and all
instruments and to do any and all acts and things which said attorneys and
agents, or any of them, deem advisable to enable the Company to comply with the
Securities Exchange Act of 1934, as amended, and any requirements of the
Securities and Exchange Commission in respect thereto, relating to annual
reports on Form 10-K, including specifically, but without limitation of the
general authority hereby granted, the power and authority to sign his name in
the name and on behalf of the Company, as indicated below opposite his
signature, to annual reports on Form 10-K or any amendment or papers
supplemental thereto; and the undersigned does hereby fully ratify and confirm
all that said attorney and agent or the substitute of any of them, shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents, this
9th day of March, 1998.
NAME TITLE
---- -----
Director and Chairman
- -----------------------------
Bradley S. Scott
Director, President and
- ----------------------------- Chief Executive Officer
James P. Alampi
Senior Vice President and
- ----------------------------- Chief Financial Officer
Linda C. Larrabee
Director
- -----------------------------
Maurice A. Cocca
Director
- -----------------------------
Susan B. Gould
Director
- -----------------------------
Christopher G. Knowles
Director
- -----------------------------
Melvin A. Martin
Director
- -----------------------------
Thomas J. O'Malia
/s/ GLEN E. TULLMAN Director
- -----------------------------
Glen E. Tullman
Director
- -----------------------------
John Wilcox
<PAGE> 10
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a
director or officer, or both, of INSURANCE AUTO AUCTIONS, An Illinois
corporation (the "Company"), does hereby constitute and appoint JAMES P. ALAMPI
AND GASPARE G. RUGGIRELLO, each with full power to act, as the true and lawful
attorney and agent of the undersigned, with full power of substitution and
resubstitution of each said attorneys, to execute, file or deliver any and all
instruments and to do any and all acts and things which said attorneys and
agents, or any of them, deem advisable to enable the Company to comply with the
Securities Exchange Act of 1934, as amended, and any requirements of the
Securities and Exchange Commission in respect thereto, relating to annual
reports on Form 10-K, including specifically, but without limitation of the
general authority hereby granted, the power and authority to sign his name in
the name and on behalf of the Company, as indicated below opposite his
signature, to annual reports on Form 10-K or any amendment or papers
supplemental thereto; and the undersigned does hereby fully ratify and confirm
all that said attorney and agent or the substitute of any of them, shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents, this
9th day of March, 1998.
NAME TITLE
---- -----
Director and Chairman
- -----------------------------
Bradley S. Scott
Director, President and
- ----------------------------- Chief Executive Officer
James P. Alampi
Senior Vice President and
- ----------------------------- Chief Financial Officer
Linda C. Larrabee
Director
- -----------------------------
Maurice A. Cocca
Director
- -----------------------------
Susan B. Gould
Director
- -----------------------------
Christopher G. Knowles
Director
- -----------------------------
Melvin A. Martin
Director
- -----------------------------
Thomas J. O'Malia
Director
- -----------------------------
Glen E. Tullman
/s/ JOHN WILCOX Director
- -----------------------------
John Wilcox
<PAGE> 11
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a
director or officer, or both, of INSURANCE AUTO AUCTIONS, An Illinois
corporation (the "Company"), does hereby constitute and appoint JAMES P. ALAMPI
AND GASPARE G. RUGGIRELLO, each with full power to act, as the true and lawful
attorney and agent of the undersigned, with full power of substitution and
resubstitution of each said attorneys, to execute, file or deliver any and all
instruments and to do any and all acts and things which said attorneys and
agents, or any of them, deem advisable to enable the Company to comply with the
Securities Exchange Act of 1934, as amended, and any requirements of the
Securities and Exchange Commission in respect thereto, relating to annual
reports on Form 10-K, including specifically, but without limitation of the
general authority hereby granted, the power and authority to sign his name in
the name and on behalf of the Company, as indicated below opposite his
signature, to annual reports on Form 10-K or any amendment or papers
supplemental thereto; and the undersigned does hereby fully ratify and confirm
all that said attorney and agent or the substitute of any of them, shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents, this
9th day of March, 1998.
NAME TITLE
---- -----
STEPHEN L. GREEN Vice President, Corporate Controller
- -----------------------------
Stephen L. Green
<TABLE> <S> <C>
<ARTICLE> 5
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<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JAN-01-1997
<PERIOD-END> DEC-31-1997 DEC-31-1997
<CASH> 9,634,000 0
<SECURITIES> 0 0
<RECEIVABLES> 28,992,000 0
<ALLOWANCES> 0 0
<INVENTORY> 11,762,000 0
<CURRENT-ASSETS> 52,256,000 0
<PP&E> 37,707,000 0
<DEPRECIATION> (16,929,000) 0
<TOTAL-ASSETS> 207,072,000 0
<CURRENT-LIABILITIES> 26,548,000 0
<BONDS> 20,246,000 0
0 0
0 0
<COMMON> 11,000 0
<OTHER-SE> 131,809,000 0
<TOTAL-LIABILITY-AND-EQUITY> 207,072,000 0
<SALES> 64,059,000 259,325,000
<TOTAL-REVENUES> 64,059,000 259,325,000
<CGS> 49,133,000 199,983,000
<TOTAL-COSTS> 49,133,000 199,983,000
<OTHER-EXPENSES> 11,783,000 49,139,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 627,000 2,700,000
<INCOME-PRETAX> 2,728,000 8,324,000
<INCOME-TAX> 1,254,000 3,829,000
<INCOME-CONTINUING> 1,474,000 4,495,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
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<NET-INCOME> 1,474,000 4,495,000
<EPS-PRIMARY> 0 0
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</TABLE>
